Annual Report 2007 Year Ended March 31, 2007
Nissan: Enriching People’s Lives Contents Vision Nissan: Enriching People’s Lives
Mission Financial Highlights 1 Nissan provides unique and innovative automotive Letter from the President and CEO 2 products and services that deliver superior measurable Executives 5 Renault-Nissan Alliance 6 values to all stakeholders* in alliance with Renault.
The Nissan Way 7 *Our stakeholders include customers, shareholders, employees, dealers, suppliers, as well as the communities where we work and operate.
8 Performance This annual report presents financial results for the fiscal period Fiscal 2006 Performance 10 ending March 31, 2007. The report also provides shareholders Fiscal 2007 Outlook 12 with insights into Nissan’s management team. Through one-on- Status of Breakthroughs 14 one interviews, various members of executive management, Fiscal 2006 Financial Review 16 including President and Chief Executive Officer, Carlos Ghosn, Fiscal 2006 Share Performance 19 discuss the philosophy and direction of Nissan.
20 Regional Action Reports Japan 22 Sustainability Report North America 24 http://www.nissan-global.com/EN/ COMPANY/CSR/LIBRARY/SR/ Europe 26 General Overseas Markets 28 Annual Report http://www.nissan-global.com/EN/ IR/LIBRARY/AR/
32 Investment for the Future Profile Technology 34 http://www.nissan-global.com/EN/ IR/LIBRARY/PROFILE/ India 38
Our Websites Corporate Information 40 Financial Section http://www.nissan-global.com/EN/COMPANY/ IR Information http://www.nissan-global.com/EN/IR/ Product Information (by Country) http://www.nissan-global.com/EN/GLOBAL/ 86 Corporate Data Product Information (Japan) http://www.nissan.co.jp/ Environmental Activities http: //www.nissan-global.com/EN/ENVIRONMENT/ Corporate Citizenship Activities http://www.nissan-global.com/EN/CITIZENSHIP/ Quality Initiatives http://www.nissan-global.com/EN/QUALITY/ This annual report contains forward-looking statements on Nissan’s Safety Activities future plans and targets, and related operating investment, product http://www.nissan-global.com/EN/SAFETY/ planning and production targets. Please note that there can be no Latest Technologies assurance that these targets and plans will actually be achieved. http://www.nissan-global.com/EN/TECHNOLOGY/ Achieving them will depend on many factors, including not only Nissan’s activities and development, but on the dynamics of the Design Activities automobile industry worldwide and the global economy. http://www.nissan-global.com/EN/DESIGN/ FINANCIAL HIGHLIGHTS
Nissan Motor Co., Ltd. and Consolidated Subsidiaries Fiscal years 2006, 2005, 2004, 2003 and 2002
Millions of U.S. dollars (Note 1) Millions of yen (except per (except per share amounts and number of employees) share amounts) 2006 2005 2004 2003 2002 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2004 Mar. 31, 2003 Mar. 31, 2007
Net sales ¥10,468,583 ¥ 9,428,292 ¥8,576,277 ¥7,429,219 ¥6,828,588 $ 88,717 Operating income 776,939 871,841 861,160 824,855 737,230 6,584 Net income 460,796 518,050 512,281 503,667 495,165 3,905 Net income per share (Note 2) 112.33 126.94 125.16 122.02 117.75 0.95 Cash dividends paid (Note 3) 131,064 105,661 94,236 74,594 50,800 1,111 Net assets (Note 4) ¥ 3,876,994 ————$ 32,856 Shareholders’ equity (Note 4) — ¥ 3,087,983 ¥2,465,750 ¥2,023,994 ¥1,808,304 — Total assets 12,402,208 11,481,426 9,848,523 7,859,856 7,349,183 105,103 Net automotive interest-bearing debt (Note 5) (254,638) (372,893) (205,791) 13,603 107,952 (2,158) Employees 186,336 183,356 183,607 123,748 127,625
Notes: 1. Unless indicated otherwise, all dollar figures herein refer to U.S. currency. Yen amounts have been translated into U.S. dollars, for convenience only, at ¥118= $1, the approximate exchange rate on March 31, 2007. 2. Net income per share amounts are based on the weighted average number of shares of common stock outstanding during each year. Figures for net income per share are in exact yen and U.S. dollars. Number of shares outstanding as of March 31, 2007: 4,520,715,112. 3. Cash dividends during the full year by subsidiary companies to non-Nissan minority shareholders are not included. 4. Effective April 1, 2006, the Company adopted a new accounting standard for presentation of net assets in the balance sheet and related implementation guidance. Under the new accounting standard, net assets represent aggregate of previous shareholders' equity, share subscription rights and minority interests. 5. Net automotive interest-bearing debt is calculated by subtracting cash and cash equivalents from interest-bearing debt in the automotive automobile and eliminations segment. Negative figure represents that the ending balance of cash and cash equivalents exceeds that of interest-bearing debt.
Net Sales Operating Income Net Income (Billion Yen) (Billion Yen) (Billion Yen)
10,468.6 776.9 460.8
’02 ’03 ’04 ’05 ’06 ’02 ’03 ’04 ’05 ’06 ’02 ’03 ’04 ’05 ’06 9,428.3 871.8 518.1 8,576.3 861.2 512.3 7,429.2 824.9 503.7 6,828.6 737.2 495.2
Nissan Annual Report 2006-2007 1 LETTER FROM THE PRESIDENT AND CEO
The sole purpose of a public company is to create top-line growth, profitability, future investment growing sustainable value. At Nissan, we are totally and economies of scale through the Alliance. We focused on this purpose. have made significant progress in each area as However, for the first time in eight years, we missed shown below. our performance objectives in fiscal 2006. As a result, The first driver of top-line growth will come from our we have extended the delivery period for all Nissan future product pipeline and geographical expansion. Value-Up commitments by one year. Once we complete the 28 model launches for The stock market recognized this shortfall and Nissan Value-Up this year, we will introduce over 33 our share price mirrored our performance. However, new products during the next three years. As we we believe we are well below our potential. embark on this product offensive, we are focused on “smoothing out” the product-launch cadence in order Fiscal 2006 to avoid a new-product drought, such as those we This past year, all the headwinds we anticipated experienced in 2005 and 2006. This should reduce materialized and were more severe than expected. the likelihood of profit fluctuations and increase the This happened the lowest point of our product cycle. possibility for sustainable growth. Although we successfully launched new models, Regarding geographical expansion, one of our such as the Altima and G35, they were introduced breakthroughs under Nissan-Value Up, we have late in the fiscal year and did not lead to overall successfully expanded our geographic presence in annual volume growth. And the sales decline in our emerging markets as evidenced by the recent existing models offset these successful launches. In partnership with Renault and Mahindra in India. We addition, our short-term profit potential was offset by expect significant growth in these markets. our heavy investments for the future. Infiniti, another breakthrough, has also been In order to re-boost our profitability, we have successful in accelerating its geographical implemented several measures in Japan, U.S., expansion. After its introduction in Korea in 2005 Europe, and South Africa to address various issues and Russia in 2006, Infiniti will enter the Chinese including production capacity, dealer networks, and and Ukrainian markets in 2007 and during 2008 human resources. Yet, it is important to understand extend across Western Europe. how our situation today is different from 1999, when Top-line growth must be achieved with Nissan underwent a major recovery. Today, we are profitability. Growing volumes without an appropriate fine-tuning our operations in order to boost our contribution to profit does not make good business performance. sense. Profit is also key to maximizing cash flow. In this regard, brand and product value are crucial. Progress toward long-term value creation Several third-party non-financial leading indicators Addressing our short-term issues is important, but have exhibited our improvement in brand and we also believe it is important to achieve long-term product value. profitable growth that is measurable in the context of J. D. Power and Associates APEAL Study in a solid long-term plan. the U.S. measures owner delight with the design, In our long-term planning, the priority is to content, layout and performance of their new maximize free cash flow. The key drivers will be vehicles. In the 2006 survey, Nissan and Infiniti were
2 Nissan Annual Report 2006-2007 the segment leaders in five out of nineteen categories. Nissan has three segment-leading models, more vehicles than any other brand; Murano, Titan, and Armada. The Infiniti QX56 and M ranked at the top of their respective segments. In a recent text, Consumer Reports, an influential magazine for new car buyers in the U.S., ranked our new Altima near the top, as it tied for the number- one vehicle in the family sedan segment. And in Consumer Reports’ “Ten best cars in America,” Infiniti’s G35 and M were both recognized as the top picks for safety and reliability in their respective categories. Although improvement in these indicators is not immediately reflected in our financial results, this is an engine of our profitable growth for the future. There is a direct correlation between customer satisfaction and profits. But sustaining profits means preparing for the U.S. in 2010. We will launch a Nissan Maxima future today. We are investing massively, especially powered by a clean-diesel engine co-developed by in R&D. Since 1999, our annual R&D expenditures Nissan and Renault. have doubled and will come to nearly ¥500 billion in A focused technology strategy will once again be fiscal 2007. And through the Alliance, we now have a pillar of Nissan’s competitive strength and the core extensive collaboration with Renault’s R&D. of our brand identity. Our most urgent technical challenge today is to Our alliance with Renault, the last driver of meet society’s environmental expectations. That’s profitable growth, is another pillar of future strength. why 40 percent of our budget for advanced This model is unique and although not widely engineering is devoted to the Nissan Green Program understood, its effectiveness is unparalleled in the 2010, our five-year environmental blueprint. automotive industry. For our industry, environmental sustainability Together, we now rank fourth in sales volume represents the biggest engineering challenge. And and second in total profitability in the global industry. no matter what you may hear or read, there is no We share platforms, technologies and best practices silver bullet and no quick fix. In this race, the finish in order to improve our investment efficiency. And we line is nowhere in sight. So along with Renault, we continue to achieve greater purchasing synergies are pursuing every possible avenue of environmental each year. progress – from hybrids to fuel-cells to electric and Our collaboration in R&D allows us to cover clean diesels. every potential avenue of environmental progress. In April, we announced that Nissan will introduce Together, we advance on all fronts. a clean-diesel passenger car for all fifty states in the
Nissan Annual Report 2006-2007 3 As for purchasing, the Alliance has supported our In order to close this gap, we must first deliver strong breakthrough to develop new supply sources in short-term results. And we must do this without “Leading Competitive Countries,” especially in being short-term oriented because the market Eastern Europe. We will also accelerate progress in always rewards companies that perform over the India with the Alliance. long-term. When we can demonstrate strong short- There are still more areas of cooperation that term performance, the long-term performance have yet to be realized. perceptions should improve. What will close it is consistently delivering strong short-term results. Outlook Of course, we will not stop there. We will further In fiscal year 2007, we will launch 11 new products improve perceptions of our long-term potential via globally. The most important of these introductions transparent investor communications. After we will be the five models for the U.S. We will launch an successfully put ourselves on a solid track of all-new version of the Altima coupe, an all-new profitable growth, investors’ desires for more version of the Infiniti G37 coupe, the all-new transparency increased significantly. They want to compact crossover Rogue, the new compact luxury know more about our future strategy and vision and crossover Infiniti EX, and an all-new version of the have a better understanding of how we will deliver Murano. Although we will again face a challenging our plans. environment, I believe that we will get back on track Performance and transparency make for in terms of profit growth with these new models. credibility and that is what it takes to convince the market of our future potential. In this uncertain Long-term value creation business environment, a company is required to not Despite our commitment to long-term value creation, only consistently deliver strong performance, but also in recent years, our market-adjusted total return to communicate to the market in a transparent manner. shareholders has been negative. In addition, our key A company cannot completely avoid all the ups valuation multiples, including PER, have been lower and downs in its performance. But it should learn than our main competitors. Of course, multiples are from past mistakes and never make them twice; this only rough estimates and the differences may be behavior is part of Nissan’s DNA. We are committed attributed to various factors, including accounting to gaining the trust of the market and delivering differences. However, given the size of this gap to superior performance. our competitors, it’s obvious that the market is discounting the value of Nissan. Based on our analysis, a significant part of this gap is due to investor perceptions regarding our long-term performance. To a lesser extent, our recent short-term performance has also contributed to this gap. Since the two perceptions are strongly interrelated, our weak short-term performance has negatively influenced perceptions regarding the Carlos Ghosn viability of our long-term performance. President and Chief Executive Officer
4 Nissan Annual Report 2006-2007 EXECUTIVES
BOARD OF DIRECTORS AND AUDITORS
Representative Board Members Carlos Ghosn President and Co-Chairman Itaru Koeda Co-Chairman
Carlos Ghosn Toshiyuki Shiga Itaru Koeda Toshiyuki Shiga
Board Members Hiroto Saikawa Mitsuhiko Yamashita Carlos Tavares Hidetoshi Imazu Tadao Takahashi Shemaya Lévy Patrick Pélata
Auditors Hisayoshi Kojima Hiroto Saikawa Mitsuhiko Yamashita Carlos Tavares Takeo Otsubo Toshiyuki Nakamura Haruo Murakami
EXECUTIVE COMMITTEE MEMBERS
Carlos Ghosn Toshiyuki Shiga Itaru Koeda Hiroto Saikawa Mitsuhiko Yamashita Hidetoshi Imazu Junichi Endo Colin Dodge Carlos Tavares Hidetoshi Imazu Junichi Endo Colin Dodge EXECUTIVE COMMITTEE MEMBERS
(As of June 20, 2007)
Nissan Annual Report 2006-2007 5 RENAULT-NISSAN ALLIANCE
A Robust and Fruitful Alliance
The targets outlined in the Nissan Value-Up plan for diesel that began rolling out across the Renault sustainable growth would be far harder to achieve and Nissan ranges in 2006. Another is an all-new without the close and continuing cooperation of our clean diesel engine that will debut in the United Alliance partner, Renault. With CEO Carlos Ghosn States in 2010 in the Nissan Maxima. This leading the executive committees of both companies, engine, part of a concerted effort to reduce CO2 the Alliance has become an even greater source of emissions and dependence on pure petroleum- global insight and solutions. based fuels, will clear stringent U.S. Environmental A distillation of best practices from two Protection Agency emissions requirements. companies is much more potent than what one alone • In July 2007, Nissan Mexicana introduced a new can produce. The Alliance board meets regularly to vehicle to the Mexican market called the Aprio. develop strategy and to share perspectives on major This car is a variation of the Renault Logan industry issues and opportunities. already being marketed in more than fifty Because its scope remains open and flexible, the countries under the Renault and Dacia brands. Alliance has generated a wide spectrum of projects The Aprio is built at the Renault manufacturing and initiatives. For example, one core benefit of the plant in Curitiba, Brazil, and is the most recent Alliance is the capacity to carry out in-depth example of the robust collaboration between benchmarking that would not be possible with a third Renault and Nissan. party. Nissan and Renault’s joint transparency policy To make the Alliance thrive, Nissan and Renault encourages such disclosures, giving us the concentrate solely on opportunities with the potential to advantage of a dual angle on problems and their benefit both partners. One example is shared sales potential solutions. financing services in various markets, including Europe. The Alliance presents opportunities in engineering If a project is not mutually advantageous, we either find as well. We have collaborated on powertrain a way to balance the return or abandon the venture. development, for example, giving both Renault and In the end, the true worth of the Alliance springs Nissan the chance to refine a fundamental from its virtually limitless potential. We realize that we component of the carmaking craft. Across functions each have our own strengths and goals, but that only and borders, our engineers are inspiring each other to energizes us to discover where we can rely on each devise the vehicles of the future. other for support. We challenge each other, too, and Further optimization of the Alliance in areas such in doing so, move our businesses to a higher road. as distribution and shared production capacity lowers cost and risk—factors that will help us expand faster in the largely untapped General Overseas Markets (GOM). Where one partner has a presence and the other does not, the support and market knowledge is there to be shared. For a totally new market or segment, we discuss the best way to enter. Two recent examples of Alliance cooperation are: • New diesel engines with market-changing potential. One is the M1D, a 2.0-liter common-rail The Renault Scenic (left) and Nissan Dualis
6 Nissan Annual Report 2006-2007 THE NISSAN WAY
What Keeps Nissan in Motion
A global corporation must be nimble in both its grassroots knowledge and ways of thinking. In the thinking and its actions to thrive in these highly process, we often gain solutions that stretch the competitive times. For that reason, the foremost organization in new and profitable directions. tenet of the Nissan Way is cross-functionality—a way Open, constructive exchanges are at the heart of to unite all our far-flung businesses and people. effective two-way communications. The way we Aligned with the Nissan Value-Up business plan, it is relate to others, both inside and outside Nissan, is our most potent management tool. based on mutual trust and respect. And because What does cross-functionality mean in everyday information flows so much faster now, we have terms? The easiest way to understand the concept is developed sophisticated new communications to look at our cross-functional teams, or CFTs. A CFT channels. Nissan employees can access company is a group of Nissan employees formed from various data and transmit what they know to our regions, cultures, organizations and disciplines. Their stakeholders, suppliers, the media and other experiences and perspectives are often quite interested parties in a more efficient way. different. What seems perfectly logical to one CFT Nissan’s strength springs from our motivated, member may seem out of context to another. passionate people, and we work to increase their Not surprisingly, the interactions between these enthusiasm in many ways. Keeping our management individuals often generate what we call “healthy consistent and promoting empowerment is one of conflict.” Many companies would view such internal those ways. Our managers operate with strict tension as something to be avoided. We do not. accountability, assess progress objectively, and Instead, we believe it produces the kind of energy readily acknowledge superior performance. Their and creative vision that sets a company above attitudes and ethical behavior inspire trust in the the rest. actions and decisions of the company. Employees Behind all of these interactions is the collective readily participate in the decision-making process desire to serve Nissan’s customers. We realize that because they know the management structure and no single part of our business is capable of feel confident in expressing their own opinions and producing everything that our customers need— ideas. That is how true empowerment grows. exceptional products and the sales, distribution and Those are the elements of our corporate services that must accompany them. That is precisely philosophy. As Nissan continues to pursue why cross-functional activities are the core of every sustainable, profitable growth, our thinking will operation within Nissan. remain broad. Our ultimate goal is to become the Another fundamental and closely related concept leading automaker in brand strength, quality, for us is “stretch.” Frequently a question arises that profitability and performance, and we aim to do it in potentially affects every facet of our operations. every country, region and product segment. The When that happens, we have to look far and wide for Nissan Way will continue to give us the flexibility to a definitive answer. One distinct advantage of being redefine who we are, based on the needs and a global business is that we can tap into a wealth of desires of our customers.
Nissan Annual Report 2006-2007 7 » PERFORMANCE
PERFORMANCE
ELEGANT AND SEAMLESS. ATTUNED AND INTUITIVE. DRIVING BEYOND EXPECTATIONS. THESE ARE ALL NISSAN ATTRIBUTES, INTEGRAL TO OUR CARS AND HOW WE CREATE THEM. FROM ENTRY-LEVEL VEHICLES TO OUR TIER 1 LUXURY BRAND, INFINITI, SINGULAR PERFORMANCE IS A GIVEN. NISSAN’S PROFITABLE, COST-COMPETITIVE NATURE REFLECTS THAT, BRINGING US MORE CUSTOMERS WHO RECOGNIZE AND VALUE QUALITY.
8 Nissan Annual Report 2006-2007 PERFORMANCE »
Performance
Nissan Annual Report 2006-2007 9 » PERFORMANCE
FISCAL 2006 PERFORMANCE
Continuing Challenges on All Fronts
In fiscal 2006, all the anticipated headwinds overseas subsidiaries have been harmonized to align materialized. There was almost no growth in mature with the consolidated fiscal period ending in March. markets. And with high levels of incentive spending, So this year we will align calendar with fiscal by the industry had no ability to pass on higher raw- including five quarters of results for subsidiaries material costs to the consumer. previously consolidated on a calendar-year basis. The result was a tough business climate for the • Consolidated net revenues was ¥10 trillion auto industry at the lowest point in Nissan’s product 468.6 billion, with the inclusion of ¥767.6 billion of cycle and at a time when Nissan is investing heavily fifth-quarter results from calendar-year subsidiaries, for its future. compared to ¥9 trillion 428.3 billion. We knew the first half would be rough. As our • Operating profit was ¥776.9 billion, with the product offensive began in the second half, we inclusion of ¥21.4 billion of fifth-quarter results, forecast a recovery in both sales and profit. compared to ¥871.8 billion in fiscal 2005. However, the full-year results were below our • Operating-profit margin was 7.4 percent, with expectations and our actions did not match the the inclusion of fifth-quarter results, compared challenge. So, for the first time in eight years we to 9.2 percent in fiscal 2005. have missed the performance objectives we had set • Ordinary profit was ¥761.1 billion, with the for ourselves. inclusion of ¥18.5 billion of fifth-quarter, compared to ¥845.9 billion in fiscal 2005. Sales performance • Net income reached ¥460.8 billion, with the Our fiscal 2006 global sales came to 3,483,000 inclusion of ¥11.6 billion of fifth-quarter, units, 2.4 percent below the previous year. Around compared to ¥518.1 billion in fiscal 2005. the world, we introduced ten all-new models—all but • We had a net cash position of ¥254.7 billion at one in the second half—including several important the close of fiscal 2006. pillars of our line-up: • An all-new version of Altima, our volume leader Nissan Value-Up commitments in the U.S. Nissan Value-Up features three commitments: • The new generation of Infiniti’s volume leader, • To maintain the top level of operating profit the G35 margin among global automakers for each of • Livina Geniss, the first model in a new family of the three years of the plan global cars launched first in China • To achieve global sales of 4.2 million units in fiscal 2008 Fiscal 2006 financial performance • To achieve a 20 percent return on invested There is an important note on a change in capital on average over the course of the plan, consolidation methods which is in line with auto excluding cash on hand industry standards: As previously announced, in order Fiscal 2006 did not boost results towards to increase transparency and consistency, we are achieving the objectives of Nissan Value-Up. harmonizing calendar-year results for overseas However, the commitments are still within the subsidiaries such as Europe and Mexico with fiscal- potential of the company and Nissan remains year results for Nissan Motor Co., Ltd. focused on delivering them completely. As such, the With the exception of some countries where company will extend the delivery period of the Nissan fiscal-period accounting is precluded by law, all Value-Up commitments by one year.
10 Nissan Annual Report 2006-2007 PERFORMANCE »
Consolidated Net Revenue Consolidated Operating Global Retail Sales (Billion Yen) Profit/Margin (Units: 1000s) (Billion Yen/%)
10,468.6 776.9 3,483 +11.0% -10.9% -2.4%
11.1% 10.0% 10.8% 9.2%
7.4%
’02 ’03 ’04 ’05 ’06 ’02 ’03 ’04 ’05 ’06 ’02 ’03 ’04 ’05 ’06
9,428.3 871.8 3,569 8,576.3 861.2 3,389 7,429.2 824.9 3,057 6,828.6 737.2 2,771
Nissan Value-Up Three Commitments
Consolidated Operating Profit Global Sales Volume Return on Invested Capital Margin (Units: 1000s) (Auto)
FY05 9.2% FY05 3,569 FY05 19.4% FY06 7.4% FY06 3,483 FY06 15.3%
ROIC COP = (auto) [Fixed assets + net working capital]
* Same scope of consolidation as P&L
Nissan Annual Report 2006-2007 11 » PERFORMANCE
FISCAL 2007 OUTLOOK
Taking Action to Boost Performance
At our third-quarter financial announcement, we Sales objective acknowledged our performance was unsatisfactory • Global sales at 3.7 million units, a 6.2 percent and pledged to take immediate action. increase We now have a new leadership team; with an • Japan sales at 700,000 units, which is based Executive Committee expanded from seven to nine on the expectation of a further decline in total members to better cover our business priorities. industry volume and a very competitive market We have also taken a number of business • U.S. sales at 1.1 million units initiatives to improve profitability: • European sales at 600,000 units • In Japan, we are restructuring our dealer • General Overseas Markets, including Mexico network to focus more on the customer with and Canada, sales at 1.3 million units better-trained resources. • In the first quarter, our Oppama and Tochigi Financial outlook plants transitioned to single-shift operations to Throughout fiscal 2007, we will again face a be in line with actual demand in Japan. challenging environment due to high raw-material and • Nissan Shatai will close its #1 plant and shift energy prices, rising interest rates, volatile foreign- production to the #2 plant, and to the Kyushu exchange rates, high incentive levels and a growing plant, which is being expanded. number of distressed suppliers and competitors. • We have initiated voluntary-retirement programs The only way to overcome all these obstacles is across all operations in Japan. to remain focused on delivering Nissan Value-Up • In the U.S., we have implemented voluntary- effectively and completely. transition programs. Taking all of the above into account, our forecast • In Europe, we’re transforming national sales for fiscal 2007 is as follows. This is based on a companies into leaner regional business units. foreign-exchange-rate of ¥117 per dollar and • In South Africa, we have announced headcount ¥148 per euro, which were the average rates during reductions to boost productivity and fiscal 2006: competitiveness. • Net revenue of ¥10 trillion 300 billion • Operating profit of ¥800 billion We are fine-tuning our operations in order to boost • Ordinary profit totaling ¥773 billion our performance. As we address short-term issues, • Net income at ¥480 billion we remain focused on our long-term goals, while • Capital expenditures of approximately keeping a close eye on the motivation and ¥515 billion engagement of our people. • R&D expenses totaling ¥490 billion
12 Nissan Annual Report 2006-2007 PERFORMANCE »
New Models for Fiscal 2007
Europe Japan GOM* U.S. Altima Coupe X-TRAIL Atlas F24 Livina G37 Coupe GT-R Aprio Rogue Frontier Navara S/C Infiniti EX Murano *General Overseas Markets
Global Retail Sales Volume (Units: 1000s) 3,700 +6.2% Retail Sales by Region (Units: 1000s)
Japan U.S. Europe GOM *1
700 1,100 600 1,300 -5.4% +6.3% +11.2% +11.3%
’02 ’03 ’04 ’05 ’06 ’07 ’04 ’05 ’06 ’07 ’04 ’05 ’06 ’07 ’04 ’05 ’06 ’07 ’04 ’05 ’06 ’07 Forecast Forecast Forecast Forecast Forecast
3,483 740 1,035 540 1,168
3,569 842 1,075 541 1,111 3,389 848 1,013 544 983 3,057 *1 Including Mexico and Canada 2,771
Nissan Annual Report 2006-2007 13 » PERFORMANCE
STATUS OF BREAKTHROUGHS
Despite Challenges, Mid-Term Plan and Breakthroughs Continue to Drive Our Business
Fiscal 2006 did not boost our results towards The third breakthrough involves developing new achieving the objectives of Nissan Value-Up. But we sources for parts, machinery & equipment, vendor believe the commitments are still within the potential tooling and services in what we call “Leading of the company and we remain focused on delivering Competitive Countries.” Sourcing bases are now them completely. Accordingly, we will extend the established in China and ASEAN for Japan; in Mexico delivery period for all Nissan Value-Up commitments for North America; and in Eastern Europe for Europe. by one year. At the same time, we continue to To accelerate progress, the next step will be to prepare our next business plan, and we will develop a new sourcing base in India. In fiscal 2006, announce it next April. for Japan, North America and Europe, 15 percent of Nevertheless, during fiscal 2006, we made our purchasing, by value, was sourced from LCCs, tangible progress towards the four key versus 12 percent the previous year. In fiscal 2007, breakthroughs that are central to Nissan Value-Up. we will accelerate this trend to source 24 percent of our purchasing from LCCs. To reduce costs and Our first breakthrough aims to establish Infiniti as a focus employees on core tasks, we are outsourcing globally recognized luxury brand. In fiscal 2005, back-office functions and a variety of work in Infiniti was introduced in Korea. And in fiscal 2006, engineering, information services and manufacturing. the brand was successfully launched in the rapidly In fiscal 2006, this effort yielded gross savings of growing Russian market. In fiscal 2007, geographic ¥43 billion in costs reduced or avoided. expansion will accelerate as Infiniti enters the Chinese and Ukrainian markets and then extends The fourth breakthrough expands our geographic across Western Europe in 2008. To serve these new presence in emerging markets, known as BRICs and markets, new products are coming. The all-new G35 beyond. In Brazil, we are investing $150 million in our sedan launched in 2006 will be followed this year by operations and targeting sales of 40,000 units by the G37 coupe and the EX compact luxury 2009. In Russia, we are investing $200 million in a crossover. Infiniti is poised for rapid global growth. plant in St. Petersburg that will have a capacity of 50,000 units when it opens in 2009. In India, we are The second breakthrough aims to build a global joining Renault in a partnership with Mahindra. presence in Light Commercial Vehicles—or “LCVs.” Together, we are building a plant in Chennai that Global sales have grown 57 percent, since the start will open in 2009, with a planned capacity of of Nissan Value-Up, to 490,000 units in fiscal 2006. 400,000 units. In China, since 2003, we have More importantly, the LCV business unit over- invested $1.6 billion in our partnership with achieved its 8 percent operating-margin milestone. Dongfeng, with recent investments in a new engine With LCVs now firmly established as a pillar of our plant and a new R&D center. global business, we are building on this momentum.
14 Nissan Annual Report 2006-2007 PERFORMANCE »
During Nissan Value-Up we will pursue four major breakthroughs:
Infiniti Global Top Tier Brand Light Commercial Vehicles (LCVs)
(Thousand units) (% of consolidated operating margin) 490 500 10 >8.0% Russia ’06 401 400 8 Ukraine ’07 7.7% Europe ’08 China ’07 300 6 North America Objective
Middle East Korea ’05 200 4 Taiwan
100 2
0 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 0 NRP Nissan Nissan 180 Value-Up
Leading Competitive Countries (LCCs) Geographic Expansion
Russia Hungary Romania China Egypt China India Mexico India Vietnam Thailand Brazil Mercosur Countries
Nissan Annual Report 2006-2007 15 » PERFORMANCE
FISCAL 2006 FINANCIAL REVIEW
FISCAL 2006 WAS THE FIRST TIME IN EIGHT YEARS WE MISSED THE PERFORMANCE OBJECTIVES WE HAD SET FOR OURSELVES. ALL THE ANTICIPATED HEADWINDS MATERIALIZED. HOWEVER, OUR ACTIONS DID NOT MATCH THE CHALLENGE. WE HAVE TAKEN A NUMBER OF BUSINESS INITIATIVES TO IMPROVE PROFITABILITY AT THE END OF FISCAL 2006. WE REMAIN FOCUSED ON DELIVERING THE MID-TERM PLAN “NISSAN VALUE-UP” COMPLETELY.
In order to increase transparency and consistency, Operating profit we have harmonized calendar year results for Operating profit was ¥776.9 billion, with an overseas subsidiaries, such as Europe and Mexico, operating profit margin of 7.4 percent. The following with fiscal year results for Nissan Motor Co., Ltd. factors affected operating profit: With the exception of some countries where fiscal- • Foreign exchange rate fluctuations produced a period accounting is precluded by law, all overseas ¥70.8 billion gain for the year. Of that total, subsidiaries have been harmonized to align with the ¥39.2 billion came from the appreciation of the consolidated fiscal period ending in March. This was U.S. dollar against the yen. The appreciation of done by including an additional quarter of results the euro resulted in a positive impact of ¥16.7 from January to March in 2007 for those billion. Forex activity in other currencies brought subsidiaries previously consolidated on a calendar in ¥14.9 billion. year basis. • Scope of consolidation changes had a positive Adding this fifth quarter resulted in a one time impact of ¥8.4 billion. positive impact to fiscal 2006 results of ¥767.6 • Raw material and energy costs increased by billion in revenues, ¥21.4 billion in operating profits ¥110.1 billion. Price, volume and mix had a and ¥11.6 billion in net income. negative impact of ¥156.3 billion. The combination of these two items was the Net sales principal reason for the underachievement in Consolidated net sales came to ¥10,468.6 billion, up fiscal 2006. 11.0 percent from last year. The impact from the fifth • Selling expenses increased by ¥21.8 billion, quarter resulted in an additional ¥767.6 billion. which was mainly due to the higher level of Favorable changes in foreign exchange rates incentives, particularly in the U.S. market. resulted in a ¥326.1 billion improvement. • Lower purchasing costs resulted in a contribution of ¥170.0 billion.
Impact on Operating Profit (Billion Yen)
1,000 +70.8 +8.4 –110.1 FOREX Scope Raw of con- material/ 871.8 Energy solida- +170.0 FY05 tion cost –156.3 R&D 850 O.P. Price/ Pur- expenses Warranty Q5 Volume chasing –66.3 expenses Effect 776.9 mix cost –1.4 –4.9 –6.6 755.5 reduc- Product Manu- +1.9 G&A FY06 FY06 +21.4 w/Q5 tion enrichment facturing others 12 –21.8 and expenses O.P. 700 months regulatory O.P. Selling costs expenses (Incl. incentives) 550
16 Nissan Annual Report 2006-2007 PERFORMANCE »
• Product enrichment, including regulatory costs, Net income had a negative impact of ¥66.3 billion. Net non-operating expenses came to ¥15.8 billion, • R&D expenses increased by ¥1.4 billion. improving from last year’s ¥25.9 billion due to the • Manufacturing and logistics expenses went up absence of a negative foreign exchange impact. by ¥4.9 billion. Net extraordinary items totaled negative ¥63.7 • Warranty expenses had a positive impact of billion, ¥26.8 billion higher than last year. Included in ¥1.9 billion. this year’s extraordinary items were headcount • General, administrative and other expenses rose reduction programs in the U.S. and Japan, which were ¥6.6 billion. announced in April, with an impact of ¥28.0 billion. • As previously mentioned, the inclusion of an Pre-tax income was ¥697.4 billion. Taxes totaled additional quarter from former December ¥212.1 billion, which represented an effective ending companies generated a positive impact consolidated tax rate of 30.4 percent. of ¥21.4 billion. Minority interests, which are profits from fully By region, for fiscal 2006, operating profits in consolidated companies that Nissan does not own Japan were ¥270.6 billion, which decreased from outright, such as Calsonic Kansei, Aichi Kikai and ¥390.4 billion in fiscal 2005. Although mini cars Nissan Shatai, amounted to ¥24.5 billion. Net income remained a profitable business, the deterioration in reached ¥460.8 billion, versus ¥518.1 billion in mix and decrease in overall volumes in Japan were fiscal 2005. the main reasons for the decline in profitability. Profitability in the U.S. and Canada was ¥282.6 FINANCIAL POSITION billion, versus ¥345.4 billion last year. Thirty percent of the decline in U.S. profitability was attributable to Balance sheet the QR 25 engine recall, which was booked in In fiscal 2006, Nissan’s total consolidated assets regional accounts. In Europe, operating profit went up by 8.0 percent to ¥12,402.2 billion. increased to ¥79.6 billion in fiscal 2006 from ¥67.2 Current assets increased by 7.8 percent to billion in fiscal 2005. In the General Overseas ¥6,492.9 billion. The main reasons were the ¥190.5 Markets, operating profit was ¥113.3 billion, versus billion increase in notes and accounts receivables and ¥101.2 billion last year. Inter-regional eliminations a ¥148.2 billion increase in inventories. Fixed assets resulted in a positive ¥9.4 billion. increased to ¥5,909.3 billion, an 8.3 percent rise.
Net Cash Flow (automotive) Corporate Rating (Billion Yen)
+1,038.6 –255.1 Working Aa3 AA– 1,400 Net cash capital from and –265.7 A1 A+ operations others Tax A2 A paid R&I 1,050 –496.8 A3 A– Investing Net activities Financing Baa1 BBB+ automotive activities 700 –¥165.7 billion Net S&P cash at automotive Baa2 BBB beginning cash at the of FY06 –131.1 Baa3 BBB– +18.7 –53.3 end of 372.9 Dividend +26.5 FY06 Moody’s 350 Free cash flow paid Treasury Other Ba1 BB+ ¥21.0 billion stock FX rate 254.7 financial impact activities 9/01 4/02 9/02 4/03 9/03 4/04 9/04 4/05 9/05 4/06 0
Nissan Annual Report 2006-2007 17 » PERFORMANCE
Current liabilities went up 14.9 percent to Investment policy ¥5,575.3 billion. This was due to increases in short Capital expenditures were ¥509.0 billion, or 4.9 term borrowings. Non-current liability decreased by percent of net revenue. This included the 9.4 percent from fiscal 2005 to ¥2,949.9 billion. investments in “New Design Center” and “Nissan This was mainly caused by the decrease in long Advanced Technology Center”. R&D expenditures term borrowings. were ¥464.8 billion. The funds were used for Net assets increased 14.8 percent to ¥3,877.0 developing new technologies and products. Our R&D billion compared to ¥3,377.0 billion in fiscal 2005, strategy is focused, sustainable and innovative. which had been adjusted for related implementation This strategy is a result of our cross-functional guidance. This was mainly due to the increase in net corporate culture. income of ¥460.8 billion, which was offset by the And through the Alliance, we now have an decrease of ¥131.1 billion in dividends paid. extensive collaboration with Renault’s R&D.
Automotive net cash change Dividend Cash from operations totaled ¥1,038.6 billion. Free At the annual general meeting of shareholders on cash flow totaled ¥21.0 billion by increased working June 20, 2007, the company proposed increasing its capital, tax payment and capital expenditures. Cash dividend to ¥34 per share in fiscal 2006, which was outflow from financing activities totaled ¥165.7 an increase from ¥29 in 2005. And we will maintain billion, including ¥131.1 billion for dividend payments. the dividend payment plan of ¥40 per share at the We had a net cash position of ¥254.7 billion at end of Nissan Value-Up in March 2008. the end of fiscal 2006, which represented a decrease of ¥118.2 billion compared to the Return on invested capital beginning of the fiscal year. This was due to the At the end of fiscal 2006, return on invested capital decrease in cash from operations and increase in (ROIC) was 15.3 percent. This decline from 19.4 capital expenditures. percent in fiscal 2005 was mainly due to the decrease in operating profit. Credit rating Nissan will continue to ensure that investments R&I had Nissan’s long term credit rating listed as A, are made within the strict guidelines of its operating as of May 16, 2005. S&P upgraded our rating from policies. BBB to BBB+ on July 20, 2004, and Moody’s upgraded us from Baa3 to Baa1 on March 9, 2004.
R&D Expenditure Dividend Policy (Billion Yen) (% of net revenue) (Dividend per share, in yen) 40 500 6 40 465 490 448 34 29 4.8% 398 30 400 5 24 4.4% 4.8% 19 4.2% 354 4.0% 4.6% 4.7% 20 3.8% 4.4% 14 300 300 4 8 7 262 10 239 232 0 200 FY’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 3 0 FY’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 (Forecast) (Forecast) NRP Nissan 180 Nissan R&D (left scale) % of net revenue (right scale) Value-Up
18 Nissan Annual Report 2006-2007 PERFORMANCE»
FISCAL 2006 SHARE PERFORMANCE
THE INVESTOR RELATIONS TEAM’S ROLE IS TO BETTER ADDRESS THE NEEDS OF INVESTORS AND ENHANCE THEIR UNDERSTANDING OF NISSAN’S PERFORMANCE. WE ARE COMMITTED TO ENSURING THAT INVESTORS WILL NOW BE ABLE TO GAIN A MORE IN-DEPTH VIEW OF THE COMPANY’S OPERATIONS AND PERFORMANCE INDICATORS.
Share performance in fiscal 2006 IR activities At the start of fiscal 2006, Nissan’s share price Under Nissan Value-Up, the IR team’s performance began at ¥1,398 and ended at ¥1,263, generating a will be evaluated based on the price-earnings ratio negative return of 9.7 percent. With the annual (PER) and volatility relative to our major competitors. dividend of ¥34, total return to shareholder (TRS) PER is used to measure how successfully the IR was a negative 7.2 percent. On a market-adjusted team can manage market expectations about Nissan basis, our TRS was a negative 7.4 percent. While it is in order to maintain share price close to an intrinsic true that our profit declined substantially in fiscal value. The other measure, volatility, is used to 2006, there are many activities going forward which measure the risk perceived by investors in Nissan’s are not reflected in our current result. In this report, stock. If Nissan can successfully reduce volatility, the corporate officers will explain what actions Nissan minimum return required by investors should decline. has taken and will take to ensure better performance In order to improve both measures, the IR team for the future. believes that it’s essential to improve the company’s transparency. The team plans to disclose not only Payout policy financial results but also forward-looking information At the annual general meeting of shareholders on about Nissan’s fundamentals, such as technology June 23, 2004, Nissan announced its Nissan Value- and product. Such information should help investors Up three-year dividend policy, covering the period forecast the company’s future performance from fiscal 2005 to fiscal 2007. Nissan proposed accurately and reduce uncertainty. In addition, our a long-term dividend policy to provide more visibility top management team will increase their availability and improve transparency into the ways in which the to communicate directly with investors. We believe company rewards its shareholders. Nissan believes that this will further enhance investors’ that a long-term dividend policy reduces uncertainty understanding of Nissan’s future strategy. for investors who currently own or are considering acquiring Nissan stock.
Fiscal 2006 Share Performance Five-Year Share Performance (Index: March 31, 2006=100) (Index: March 29, 2002=100)
1.3 130 TOPIX Transportation Equipment Index 250 TOPIX Transportation Equipment Index
120 200 Nissan Nissan 110 150
100 100 TOPIX
90 50 TOPIX
0.8 80 Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. 0 ’03 ’04 ’05 ’06 ’07 2006 2007
Nissan Annual Report 2006-2007 19 » REGIONAL ACTION
REGIONAL ACTION
NISSAN’S CONTINUUM OF CONCERTED GROWTH REACHES INTO MARKETS AROUND THE WORLD AND MAGNIFIES OUR STRENGTH. EVEN AS OUR PACE IN THIS PURSUIT QUICKENS AND OUR LINEUP GAINS BRIGHT NEW FACETS, WE REALIZE THAT ONLY FOCUSED EXPANSION MAKES SENSE. THAT IS WHY, REGION BY REGION AND CUSTOMER BY CUSTOMER, NISSAN CONTINUES TO FLOURISH IN BOTH ESTABLISHED MARKETS AND FARFLUNG NEW TERRITORIES.
Re
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gional Action
Nissan Annual Report 2006-2007 21 » REGIONAL ACTION
JAPAN
TOSHIYUKI SHIGA Chief Operating Officer
Establishing a Competitive Advantage in Japan
Our sales volume in Japan during fiscal 2006 satisfaction, and then accomplish that in the most was 740,000 units, representing a year-on-year efficient manner possible. decline of 12.1 percent. External factors Our sales network has historically been built on influencing these results included the drop in regions and channels. Now we offer customers the total industry volume and a shift in demand to full lineup of Nissan products and life-long service the mini-car segment. Total industry volume support through our rationalized outlets. was down by 4.1 percent from the previous year In addition, Nissan is the first company to to 5.62 million units. optimize its outlet locations as a way to minimize operational costs and utilize outlet assets more However, internal factors also played a role. For efficiently. In July 2006, we established Nissan example, we did not launch any new models in major Network Holdings to manage our 52 consolidated segments such as compacts and mini-vans. While dealers in Japan. We also split the sales and asset mini-car sales reached an all-time high, the sales of management functions into separate companies. what are referred to as “registered” cars dropped Now we are consolidating sales companies and significantly, going below 3.6 million units for the first optimizing our outlets prefecture by prefecture time since 1977. through consolidation, terminations and new sales As the aging of the population accelerates and points. In fiscal 2006, we successfully completed this customer values change, the reality is that we can no process in five prefectures and are now working to longer expect a big rise in total industry volumes in duplicate that feat in a dozen more. the future. Competition will continue to get tougher As we announced in March 2007, the objective as well. However, we believe that even in this rapidly of the Nissan network strategy is to further changing environment Nissan can establish a accelerate our restructuring efforts and transform competitive advantage. Therefore, we have taken a our networks into a distinct competitive advantage. series of corrective actions, as opposed to passively We will focus on the quality of our sales interactions following the market environment and shifts in and work to achieve outlet operations with higher customer behavior. customer satisfaction and profitability. We plan to do One of these essential reforms involved this by sharing best practices between outlet modifying the sales function. Starting in April 2005, operations and improving the capabilities of our we began combining our Red and Blue Stage outlets employees. Given the tougher competitive so that customers would have one-stop access to environment we face, we are working on reducing the entire range of Nissan products. Having multiple our indirect activities to improve the cost structure of sales channels for one brand can be effective in a our sales companies. At the same time, we are growing market. But once market growth diminishes, committed to supporting the sales staff with better the multiple channel strategy is an inefficient way to tools and methods. run a sales network. That structure also forces you to Maintaining stable sales and higher production in constantly introduce new models to maintain those Japan is crucial for us to secure our competitiveness channels, which can have a negative impact on as a global manufacturing company. That is why we investment efficiency. It is time for us to examine need to regain momentum in our domestic how to achieve the highest level of customer operations and improve profitability. We are working
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not only on network reform but also a variety of other Nissan Domestic Sales Network Renovation activities, such as launching appealing new models, In order to develop a more powerful sales network by developing innovative technologies, and optimizing renovating and empowering our outlets (sales front), the manufacturing cost structure in Japan. As a first step, NML must alter the whole concept of its Domestic Marketing and Sales Divisions. The 12th-generation Skyline, which we launched last November, has exceeded our initial forecast Focus on the sales front thanks to its design, driving performance and Switch from NML-led “Across-the-board” management to “Management that focuses on frontline sales technology. Our Dualis, which we introduced in May, communications” is also off to a solid start. While customers are Change network management changing their attitudes about car ownership, Move from Management High-performance treating cars more as commodities, we believe we by prefecture/dealer to outlets can build a stronger brand and presence in Japan if “management by individual outlet” we provide unique and innovative products. We believe that the rapid changes in the market Steps to Energizing the Outlets and competition are here to stay and indeed, intensify. However, we will seek to boost our Staff Increase and improve outlet competitive advantage in Japan by continuing to empowerment support team and field staff revolutionize our operations and products. Delegate more discretionary Frontline focus authority to individual outlets (Respect uniqueness and local needs)
Promote the Prefectural Project Outlet allocation (Optimize domestic outlet placement and investment)
Innovative Sales Outlets Reduce indirect costs by leveraging Low-cost our Business Center (BC) operation Shared Service Center (SSC)
Unique outlets, Frontline innovations, Better area marketing
Dualis Skyline Serena
Nissan Annual Report 2006-2007 23 » REGIONAL ACTION
NORTH AMERICA
DOMINIQUE THORMANN Senior Vice President Nissan North America
Building on a Strong Product Plan in a Shifting Market
The automotive market in the United States was were bringing back the incentives again, on top of a tale of two halves in fiscal 2006. In the first six the lowered prices, particularly for trucks. months of the year the industry was relatively The constant barrage of new products that we’re healthy, but we lacked new product offerings. planning over the next several years will be the fuel When we launched products in the second half, for our growth in this difficult environment. For the the economic environment was not as inviting Nissan Division, we launched the Versa, Sentra and as fuel prices started rising and housing starts an all-new Altima sedan. In the summer, we launched slowed. As a consequence, total industry our first-ever coupe version of the Altima. Later in the volume fell rapidly. year, we will release the Rogue, our new entry in the midsize crossover segment. Between those two cars, As volumes declined, so did the vehicle mix. People we’re entering segments that we had no offer in were moving from traditional SUVs to crossover before. Virtually all those sales should be incremental. vehicles and from light trucks to sedans and small In the second half of fiscal 2006 our sedan sales cars. Our sedan lineup performed relatively well, were up significantly, driven by the Altima, which is our particularly the cars we launched, but a drop in the Nissan brand volume leader. In the past, the Sentra truck segments overshadowed a lot of their success. covered both the entry-level segment and the compact Although the U.S. market is still one of the most car segment. With the introduction of the Versa to the vibrant markets in the world, TIV fell to about 16.5 entry-level market, we elevated the Sentra’s stature to million units last year. This year it’s hovering cover solely the compact car segment. between 16 and 16.2 million. In January 2007, we The Altima coupe is a line extension, and an projected the market would fall to 16 million during exciting one. There are a few other coupes out there, the fiscal year. Unfortunately, to date, we were right. but none really fulfills the word properly. A coupe In two years, the U.S. market will have lost close to a shouldn’t be just a two-door version of the sedan. million units. Altima will be the first true coupe in that segment. Of The introduction of our new small car, the Versa, the nine body panels on a vehicle, for example, it only was well timed as fuel prices are climbing. This product shares one with the Altima sedan, and we’ve also answers the needs of the marketplace, although shortened the wheelbase. While there’s still a family admittedly the margins for that segment aren’t as resemblance, it’s a dramatic departure from the sedan. high as larger cars. Still, it’s better for us to capture The Rogue is entering the fastest-growing those customers than lose them to somebody else. segment in the market today, and one that so far has The competition in the U.S. market remains been dominated by a few other models. With fuel fierce, and that’s reflected by high levels of prices so high, some people are migrating from incentives and rapid product introductions. Incentives traditional SUVs to mid-sized crossovers, while are a constant in the marketplace now—the only others are going to the small SUVs. This is a real thing that changes is how fast they’re announced opportunity to further expand our volume. and how big they are. There was a time during 2006 On the Infiniti side, we’ll be launching the G37 when some makers, after reducing their prices were coupe later in fiscal 2007. This is a replacement vehicle attempting to go without incentives. By the end of for a model that was very successful and in fact, the the fiscal year, though, they’d reversed that trend and press coverage has already been very positive.
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At the New York Auto Show we also unveiled the NNA moved its corporate headquarter in 2006 to Infiniti EX35, our first entry into the small luxury Nashville, Tennessee. crossover segment. Those sales will also be virtually Customers see one product at the end of a all incremental. The migration from traditional SUVs complex design, manufacturing and sales process. to mid-sized crossovers and small SUVs in both For the customer to get the best product at the most divisions is probably the biggest opportunity we have competitive cost, NNA must operate as one team. in the short run, because those are rapidly growing Moving the sales, marketing, finance and all of the segments where we haven’t had a presence before. administrative functions to be with manufacturing, Trucks represent a declining segment in which supply chain management and purchasing gave us the competition is very brutal. We’re not shying away the opportunity to gain in efficiencies and better from that challenge, but we’re also not resorting to understand the needs of customers. deep incentives just to maintain a bigger presence in The move went smoothly and the disruption was a shrinking market. Our number one goal is minimized by good advanced planning. A corporate profitability, not chasing volumes. regional headquarter building, Nissan Americas, is From a brand perspective, our goal on the Nissan under construction and everyone will relocate in the side is to increase customer brand opinion. A lot of summer of 2008. new-car buyers consult Consumer Reports magazine This building will also help NNA manage more before deciding what to buy, so we were really pleased effectively across the vast and complex region of the to see that after a recent test by the magazine, they Americas which stretches from Canada to Argentina. gave the new Altima a very good review. The opportunities to better leverage our On the Infiniti side, the short-term goal is to infrastructure are big. enhance brand recognition, because in relative terms Products made in Mexico, such as Versa and we’re a new brand in the U.S. luxury market. Sentra are exported within the region, primarily the Consumer Reports recognized Infiniti’s G35 and M United States and also to more distant markets like as two of the ten best cars in America for safety and Russia. In Brazil, Nissan leverages the alliance with reliability in their respective categories. In the long Renault where we share manufacturing facilities, sales term, our goal is to become one of those Tier 1 and distribution as well as administrative functions. luxury players. That’s something that has to be NNA will continue to evolve as a regional entity earned—it’s not something you can just claim. with the sole purpose of delivering better, more You have often heard Nissan talk about the competitive products for our customers with a higher importance of good, competitive products. It’s what return for all our stakeholders. customers see and, ultimately, what makes them choose the brand they buy. But for products to be competitive in the marketplace, Nissan must also be profitable. In the automotive industry, that means cost competitive. Cost competitiveness means first and foremost having the right people, but also the right purchase costs, efficient processes and an effective organization. It is with this necessity in mind that Rogue
Nissan Annual Report 2006-2007 25 » REGIONAL ACTION
EUROPE
BRIAN CAROLIN Senior Vice President Nissan Europe
Staying Profitable and Picking Up the Pace
The European market is both mature and for the customer and much better locations. saturated. Overall volume in the region was flat In the four Nordic territories—Norway, Denmark, in fiscal 2006, with Western Europe down. The Sweden and Finland—we established a new regional exception was Russia, which again enjoyed business unit to replace previous importers, and excellent TIV growth. We ended the year at restructured the dealer network. We did the same in 539,000 units, almost in line with our retail sales Central and Eastern Europe with Hungary, the Czech performance last year. Republic, Slovakia and Poland. A high point for us in 2006 was the launch of our Nissan’s market presence in Western Europe, Infiniti brand in Russia. We did this through three however, has eroded. One major reason is that we’re large dealers, with two showcase showrooms in changing the model lineup, with three models—the Moscow and another in St. Petersburg. All three Almera, Almera Tino and Primera exiting most meet the IREDI global standard. The launch was very markets. The one model we launched in 2006, the successful—we were able to deliver around 750 Note, couldn’t fully compensate for the loss of those vehicles to customers before January. Sales have three vehicles. However, we capitalized on strong accelerated since then, particularly of the FX. Having growth in Russia to maintain our total volume and a signature vehicle like the FX, which is very visible in market share. Our final sales figure for Russia was both cities, got us off to a quick start. around 76,000 units. In Western Europe, we plan to launch the Infiniti Despite the sales challenges, Nissan Europe brand at the Geneva Motor Show next March—the G reached a record consolidated operating profit again, series saloon and coupe, the FX, and a new small becoming the only Nissan region to meet its profit luxury crossover, with sales starting in the last commitment. We could have improved our sales quarter. We’ll offer a petrol-only line-up initially but performance, but chose to concentrate on profitable introduce diesel engines later. We plan to open a sales rather than chase volume. large number of sales points in fall 2008, covering Fiscal 2006 saw some significant restructuring, between 15 and 20 countries. including revamping the distribution network. In Our two major launches this year are the Qashqai January we gave one year’s notice to all dealers in and the new X-TRAIL. We believe the Qashqai will Germany, for example, keeping the best and be emblematic for the brand, demonstrating that dropping those too small or financially insecure to Nissan can offer something different to the grow with us. We’re now attracting investors who are mainstream. The launch has been very successful, able to offer professionally qualified sales staff in the with sales ahead of our expectations and a large stores, a higher quality and wider range of services order bank.
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Through the Alliance with Renault, we have Much of that growth is linked to the launch of the secured high quality diesel engines that have Qashqai. Our brand is still relatively weak in Europe; allowed us to be very competitive and follow the our image attributes are predominantly the traditional growing diesel trend in Europe. That’s very rational ones of value for money and reliability, and noticeable in the case of the Qashqai, which we offer we haven’t achieved a significant breakthrough in the with either a 1.5 dCi diesel or the fantastic 2.0-liter more “emotional” attributes. We plan to capitalize on with 150 horsepower. cars with a point of difference, like the Qashqai, We’re launching the X-TRAIL in most markets using their road presence to alter people’s around September. The initial press is very positive. perception of Nissan. The Qashqai is already picking The car is regarded as an evolution on the outside but up awards. For instance, it recently scored the a revolution inside—almost 50 percent more trunk maximum five stars in the European New Car space and a big increase in the perceived quality. Assessment Programme (Euro NCAP) adult In fiscal 2007, we aim to grow both profit and occupant safety test. volume—something we have not done since the formation of the Alliance.
New X-TRAIL Navara Infiniti FX launch in Russia
Nissan Annual Report 2006-2007 27 » REGIONAL ACTION
GENERAL OVERSEAS MARKETS
KATSUMI NAKAMURA President & CEO, Dongfeng Motor Co., Ltd.
China Great Growth and Great Challenges in China
China is a huge, crowded market—the world’s because this growth is driven by frequent launches second largest—and the competition is fierce. from various makers it’s very difficult to get major Ten makers currently have shares around 5 to volumes for each car. 10 percent, and Dongfeng Nissan was at 4.8 A primary objective of our business plan for percent and ranked ninth in 2006. The total China to date has been to increase brand industry volume exceeded seven million units, recognition. We’ve established the Nissan brand with including 4.2 million passenger vehicles and 2.8 Chinese customers through three years of efforts. million commercial vehicles. Between 2005 and Nissan is a relative latecomer to the market, however, 2006, the TIV for passenger vehicles went up and the younger generation in particular doesn’t a million units. know us well enough. I’m happy to say that our brand recognition is continually improving—we were We projected sales of 484,000 units for fiscal second in the J. D. Powers Customer Satisfaction 2006—including passenger vehicles, LCVs, and Index in 2006, just a bit behind the leader. While we heavy-duty trucks—and sold 482,500. Our numbers ranked sixth in the Sales Satisfaction Index or SSI for larger commercial vehicles were down, but ratings, there was only a small difference between passenger vehicle sales accelerated, reaching number two and number six. Nissan Tiida, our 200,000 units. Our LCVs—light commercial number one seller, with sales of around 110,000 vehicles—were also moving well, and we are now units, was number one in the entry midsize number two in the Chinese LCV market. Our new segment—one of the most competitive segments— heavy-duty truck developed at Dongfeng Motor Co. in both the 2006 J. D. Powers Initial Quality Study was named both Truck of the Year and most fuel- and the 2006 China Automotive Performance, efficient high-performance vehicle. Execution and Layout (APEAL) Study. Our objective The price competition in China is intense. Of the is to be among the top three in all of these 156 models currently being offered, just ten sold evaluations in 2007. over a hundred thousand units. Prices are down even To enhance Nissan’s reputation we are also in the top-end D segment. This top-down pressure doing product promotions and some social activities influences C segment prices, which presses down on and making donations to the less fortunate. Through the B segment. For example, in the case of the these activities and good relations with local people, Sylphy, our focus was on introducing the 2.0-liter I believe our image is improving at a grassroots level model first. But the drop in price of D segment as well. vehicles affected sales, so we’ve already introduced This year is the last one of our first-generation the 1.6-liter Sylphy to recover volume. Those are the business plan, which started in 2004 and has mainly kinds of situations we’re dealing with. focused on establishing our business base for We introduced two new products last year, the Dongfeng Nissan and Dongfeng Motor Co. Ltd. We Sylphy and the Livina Geniss. Sales of both models were establishing the production site and the new are virtually in line with our plan. We’re always busy management method, as well as our new sales launching new cars, as are other makers, because network. We are now developing a second- the Chinese customer’s eye is constantly being generation three-year business plan for 2008 to drawn to new products. The market is growing, but 2010 based on that foundation. It is essential for
28 Nissan Annual Report 2006-2007 REGIONAL ACTION »
manufacturers in the Chinese market to invest in bring in a Nissan-branded LCV product for customers offering new products here, and in the sales who would like even better quality and performance. networks and services and so on. Many We have no plans to export passenger vehicles manufacturers are developing new services for we make, because China is the only market with a customers. If we don’t do the same, our sales 20 percent sales volume increase and more than volumes and customer support will shrink. four million units. Our Dongfeng-badged commercial In fiscal 2007 we have a target of 300,000 units vehicle operation, however, is exporting trucks to for Nissan-branded vehicles, which is 50 percent emerging countries such as Pakistan, Africa and more than last year. In terms of our passenger Afghanistan, and to the Middle East. We exported vehicle business, since we plan to introduce more more than 10,000 units in 2006, and we’re aiming new products, we’ll be expanding production capacity for 12,000 units in 2007. at the Guangzhou plant from 270,000 to 360,000 This April at the Shanghai Motor Show we vehicles by 2008. We will also be expanding our introduced the new Livina. This is a very strategic dealer network from the current 300-plus outlets to vehicle for Dongfeng Nissan because it is priced four hundred. Over 70 percent of our dealers were between 80,000 and 100,000 yuan, a range profitable in 2006, and many earn enough on affordable to first-time customers who would services to pay virtually all fixed dealership fees. Our ordinarily buy Chinese makes. The Livina is Nissan- expansion efforts are now focused on establishing branded, has Nissan quality and almost the same mid-sized dealers in each province. interior space as the Tiida. It should appeal to first- Our first-quarter results for LCVs show we time buyers, especially ones with families. We already increased sales volume by 30 percent, even though have 4,000 orders in hand one month after its debut, the TIV is only growing by around 10 percent, and we which is 50 percent more than our expectations. We are trying to improve our sales performance by using hope to use this new vehicle to generate even Dongfeng-badged LCV products. We have plans to greater sales volume.
Tiida Sylphy Auto Shanghai 2007 (April, 2007)
Nissan Annual Report 2006-2007 29 » REGIONAL ACTION
GENERAL OVERSEAS MARKETS
YASUAKI HASHIMOTO Corporate Vice President
Asia/Oceania Recovering Momentum in GOM
GOM performed well in fiscal 2006 in an overall Although the competition is tough in China, we sense, increasing by 8 percent, and we reached are also gaining sales and profit. We introduced the around 860,000 units in total sales during the Livina there and it’s selling very well. Sales of the year, which is very encouraging. Tiida, which is a major model in GOM in terms of volume and profit, are now up in many markets. So However, 2006 was a difficult time due to both far in 2007, the sales of passenger vehicles are external and internal factors. Some markets like approximately 128,000 units, which is an increase of Indonesia, Thailand and Taiwan were sluggish, 30 percent compared to last year. primarily because of drops in total industry volume Since our business in GOM occurs primarily in and a lack of new models. The TIV in Taiwan, for emerging markets, we face both huge risks and example, fell by 30 percent, due to both economic huge opportunities. Without taking risks, though, we and political causes. Indonesia now imports rather cannot penetrate these markets. Fortunately, things than exports oil, and is suffering from the higher are generally good. Tensions between Pakistan and prices of oil and other economic factors. TIV there has India are decreasing, and China hasn’t given us any basically dropped by 40 percent. In Thailand, many of big surprises so far. our main products were at the end of their model One of our current initiatives is to further lives, most critically the Pickup, in a country where empower our regional headquarters in GOM to pickups comprise over 50 percent of the market. ensure that we react faster to market changes. There were bright spots, of course. One was the We are also planning to delegate more authority on Infiniti G35, which was named both Import Car of the the R&D and purchasing sides so that the local Year and Car of the Year in its segment in Korea. teams can refine products and strategy. We are The common platforms and powertrains the Alliance already preparing for future geographic expansion uses continue to make a positive difference, giving in those areas. us the cost benefits of the Renault-Nissan global We expect further growth in volume in countries sourcing network. like China, India, Pakistan and Korea, so we will need Fiscal 2007 is shaping up nicely. This past to reinforce their sales networks. This year we are January in Thailand we introduced a completely new aiming for sales of about one million units throughout truck, the Frontier Navara. It’s doing extremely well— GOM, which represents around a 14 percent we’ve gotten lots of “conquest” sales, meaning that increase from fiscal 2006. customers are coming to us from other makers. In Indonesia our new global strategic model, the Grand Livina, has received an even better reaction from customers than we anticipated. Renault will also be providing us with a new diesel engine. This is a key success factor in the GOM market, because GOM customers are sensitive about the running costs of vehicles, and the cost of ownership for diesels is much less than for petrol engine models. Frontier Navara
30 Nissan Annual Report 2006-2007 REGIONAL ACTION »
GILLES NORMAND Corporate Vice President
Middle East, Africa, Latin America and the Caribbean A Fast-Rising Performer
The story for fiscal 2006 in our part of GOM— On the plus side, Nissan’s brand power is Africa, the Middle East and Latin America—was improving, demonstrated by the narrowing of the much the same as in 2005, with double-digit price gap against our competitive benchmarks. In growth momentum in all regions. Our total certain markets and segments, we’re even exceeding volume was up 18 percent, and our average them. We also received four gold awards in South market share rose to 7.7 percent. Our growth Africa for sales and service quality—one in every was well balanced across Latin America, the sub- customer satisfaction category. Sahara, the Caribbean, the Maghreb, and the The company is clearly investing more to secure Middle East. Some countries enjoyed explosive growth. Last year we announced a 150 million dollars growth, including the doubling of our sales in investment to introduce a full new product lineup in Venezuela and Egypt, 18 percent in South Africa, Brazil and Argentina. We’re using Brazil as a laboratory and more than 20 percent in some parts of Latin to develop bio-ethanol and flexfuel technology, which America and the sub-Sahara. is crucial because we know that mature markets like the United States and Europe are seriously Rising prices for raw materials and oil have been a considering ethanol and flexfuel as alternatives. positive driver for us. For instance, our sales in Chile, Fiscal 2007 will be another year of progress for the world’s largest copper producer, are buoyant. The us. We will launch a record eight new cars in the increased traffic of such goods through the Suez Middle East, including the Altima sedan and coupe, Canal and Panama Canal has also helped us. We’ve the Xterra, the Qashqai, the new Armada, and the doubled our volume in Egypt, and our sales in new Navara. We are introducing six new models in Panama are thriving. the Maghreb region—another record. Last year we launched four new vehicles in Latin We have also launched a new family of cars America and the Caribbean, including the Tiida, called the Livina. The Livina is a global car, but we’re which was voted Car of the Year of the Americas. introducing it in GOM first. It’s already being sold in We also introduced several new models in the Middle China and Indonesia, with launches in several GOM East, such as the Sunny, now sourced from Korea countries to follow. As for the Infiniti brand, we will through our Alliance with Renault. This car is introduce the G37 coupe, the EX, and other models incredibly successful—our initial sales projections in the lineup. Our target this year is 6,000 units. were too conservative, and we’re having a hard time So, our GOM “revolution” continues. We feel good keeping our Middle East and African distributors about the products, our local operations and supplied. In the luxury market, Infiniti sales in the business partners and, most importantly, our ability to Middle East totaled 4,700 units, up 28 percent. deliver what customers expect from Nissan. That’s good, but in our opinion still far from the Infiniti’s potential in the region. We did lose an opportunity in entry-level cars, simply because we don’t have this type of product in our lineup yet. However, we recognize the global opportunity of such products and we’re working very hard to address this segment. New Showroom in Qatar opened in June 2007
Nissan Annual Report 2006-2007 31 » INVESTMENT FOR THE FUTURE
INVESTMENT FOR THE FUTURE
NISSAN RUNS FAST AND SURE ON THE HIGH ROAD OF TECHNOLOGY, USING A NEW R&D CENTER TO FOCUS OUR CREATIVE ENERGIES. WE ARE ALSO INVESTING BILLIONS IN PRODUCTION CAPACITY ABROAD, INCLUDING NEW PLANTS IN INDIA AND RUSSIA. DETERMINED TO BE A GLOBAL FORCE WITH A LOCAL PRESENCE, WE REGULARLY SOURCE PARTS AND SERVICES WHERE WE DO BUSINESS.
Investment
32 Nissan Annual Report 2006-2007 INVESTMENT FOR THE FUTURE »
for the Future
Nissan Annual Report 2006-2007 33 » INVESTMENT FOR THE FUTURE
TECHNOLOGY
MITSUHIKO YAMASHITA Executive Vice President
Inspired Technology for the Environment, Safety and Driving Pleasure
Nissan’s R&D operations focus on providing our also working on “clean diesels,” as well as cars that customers with consummate assurance of run on bio-ethanol fuels made from plants and other driving pleasure. That concept covers four renewable resources. Concurrently, we are boosting technological facets: environment, safety, our efforts to develop cars that will operate on dynamic performance, and what we refer to as electric power, such as hybrid and plug-in hybrid “life on board.” We have set clear targets for each cars, fuel-cell vehicles and electric vehicles. of these elements, and they are expressed in our During fiscal 2007, we will introduce an engine short-term, mid-term, and long-term R&D plans. to world markets that incorporates our VVEL or Variable Valve Event & Lift system. VVEL optimizes For the environment valve timing and lift, which results in more efficient Last December we announced our mid-term airflow through the cylinder. Besides significantly environmental action plan, known as Nissan Green improving responsiveness, this fine-tunes the Program 2010. As outlined in this plan, we view the balance between power and environmental following three issues as paramount: reducing carbon performance, reducing CO2 emissions by dioxide (CO2) emissions; minimizing emissions to approximately 10 percent. We are developing a preserve the atmosphere, water and soil; and the gasoline engine that emits the same level of CO2 recycling of resources (reduce/reuse/recycle). that diesel engines do, representing an overall Among the many environmental challenges we reduction in CO2 of approximately 20 percent. That face, the issue of reducing CO2 emissions is one of engine will debut worldwide in fiscal 2010. The same our highest priorities. Nissan considers the gasoline year we will also introduce a “three-liter car” in Japan engine the primary power plant for cars in the short- that can run approximately 100 kilometers on three to mid-term, and we are developing technologies to liters of gasoline, exceeding 30 kilometers per liter, enable gasoline-powered cars to significantly or more than 75 miles per gallon. This also slashes improve their fuel consumption. In practical terms, CO2 emissions by about 30 percent, roughly this will have a major impact because of the sheer equivalent to what a hybrid car achieves. number of gas-driven vehicles on the road. We are
R&D Expenditure The Orchard Concept
(Billion Yen) (% of net revenue) 1. Harvest Plan 500 6 465 490 448
4.8% 398 400 5 4.4% 4.8% 4.2% 354 4.0% 4.6% 4.7% 3.8% 4.4% 2. Seeding & 300 300 4 Growth 262 239 232 200 FY’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 3 (Forecast) R&D (left scale) % of net revenue (right scale)
3. Soil Enrichment
34 Nissan Annual Report 2006-2007 INVESTMENT FOR THE FUTURE »
The diesel engines Nissan will offer will meet the launched six gasoline engine models in Japan strict emissions standards being established equipped with CVTs. All six have achieved the top internationally at an early stage. In the first half of rank for fuel economy performance. In fact, they fiscal 2007, for example, we launched the Qashqai already surpass the 2010 standards by 20 percent, with the new Euro 4-compliant two-liter diesel and meet the highest standard for emissions, which engine for Europe. Starting in fiscal 2010, we will is known as SU-LEV. Within the next fiscal year, we introduce clean diesel cars that satisfy the Post New expect to sell more than a million vehicles equipped Long-Term Emissions Regulations in Japan, Tier2 with CVTs globally. BIN5 in North America, Euro5 in Europe, and their For the coming era of electrically powered equivalents. In North America, we will be launching a vehicles and electric motivation, we will introduce Nissan Maxima in 2010 powered by a clean-diesel hybrid vehicles first, later accelerating our launches engine co-developed by Nissan and Renault. of fuel-cell vehicles and electric vehicles—FCVs and In the area of bio-ethanol, all our gasoline-driven EVs, respectively. Furthermore, we have widely vehicles sold globally are E10 compatible, meaning acknowledged strength in lithium-ion battery they can run on gasoline that includes 10 percent technology, one of the core technologies for electric- bio-ethanol fuel. In North America, we’ve had the powered vehicles. We have been working in this area Titan pickup, which is E85 compatible, in our lineup since 1992 and will further accelerate development. since 2005. We added the E85-compatible Armada We are developing a hybrid car using our own flex-fuel vehicle in 2007. In three years we will also proprietary hybrid system that will debut during fiscal have an E100 flex-fuel vehicle ready for Brazil. 2010 in North America and Japan. We are A car’s transmission provides another way to cut promoting the development of a plug-in hybrid emissions. Our CVTs, or continuously variable system as an effective technology for reducing transmissions, can also improve fuel efficiency. CO2 emissions. Nissan has been the leader in this technology for As for FCVs, we have made several strides some time, in fact, with CVT offerings for small- to forward so far, such as development of our own large-displacement engines. We have already stack and 70Mpa hydrogen tank. We’ve used these
Vision 2015 Nissan’s roadmap for reducing the CO2 from our vehicles Technology Vision 2015 Development Concept Electric vehicle (EV) Fuel cell vehicle (FCV) Expansion of electrically powered vehicles
Safety Life on Plug-in hybrid electric Board vehicle (Plug-in HEV) Environment Dynamic Hybrid electric Performance vehicle (HEV)
CO2 emission Innovations in engines and transmissions level Electric Internal combustion Fuel cell vehicle (EV) engine (ICE) vehicle* vehicle (FCV) Plug-in HEV 2010 2050 Hybrid electric vehicle (HEV) *Including gasoline, diesel and biofuel vehicles Estimated breakdown of vehicles in 2050 by powertrain type
Nissan Annual Report 2006-2007 35 » INVESTMENT FOR THE FUTURE
TECHNOLOGY
to power the 2005 model X-TRAIL FCV, which has a company produces will be used on the hybrids, EVs range and acceleration comparable to those of its and FCVs. Some competitors have stopped lithium- gasoline sibling. We will have a high-performance in- ion battery development, primarily because of safety house stack for wider production application by the issues. Our lithium-ion battery is different from those early part of the 2010s, starting with the U.S.—where our competitors have devised and has much better a fueling infrastructure for hydrogen is currently safety characteristics. being built—and then in Japan. We think that EV use can be expanded from the For safety first half of 2010, but we need to extend the range Safety, of course, is another critical area, and our and establish a network of charging stations in safe driving environment goal is to reduce the collaboration with other industries. We will continue number of accidents to achieve the ultimate real-world testing in Japan until 2010. Our plan is to objective expressed in our Vision Zero plan. That introduce a production version to the market in the goal is to cut the number of Nissan-related early part of the decade, beginning in Japan. automobile accidents that resulted in fatalities and The three core technologies for any electrically serious injuries in 1995 in half by 2015. And it’s powered vehicle are the motor, battery and inverter. working. Fatalities and serious injuries among the To achieve the objective of the Nissan Green 10,000 Nissan-related automobile accidents in 2004 Program 2010 plan, we will continue to improve their declined by 27 percent, and in 2005 by 34 percent. performance and reduce costs to a practical level. We have been promoting R&D based on our Nissan has long been the leader in lithium-ion original concept, called the “Safety Shield,” since batteries for automobiles, and we’ve now established 2004. The Safety Shield refers to active safety a joint-venture company with NEC to develop, measures that use the vehicle itself to help avoid manufacture and market these batteries. This joint accidents. To clarify things, we’ve divided the venture will be producing an all-new lithium-ion accident “environment” into six categories: battery that will set industry standards for superior unforeseen risk, apparent risk, possible crash, performance and low cost. The batteries the new unavoidable crash, actual crash, and post-crash.
Safety Shield
The vehicle activates various technologies to help the driver, passengers and other road users avoid danger from normal driving conditions through post-accident conditions.
Helps the driver maintain Helps the driver return to a safe Helps reduce injuries and damage comfortable driving driving mode in dangerous conditions when a collision is unavoidable
36 Nissan Annual Report 2006-2007 INVESTMENT FOR THE FUTURE »
Based on the risk factors for each category, our cars sense this phenomenon within thirty meters of activate the optimal barrier and support functions to putting the car in gear. We expect our customers to avoid the risk at hand. The fruits of our development sense that dynamic performance, particularly in the in this area include “world’s first” technologies such following four scenarios: high quality when pulling as the Distance Control Assist System, Lane- away, a feeling of security while driving at higher Departure Prevention, and Around View Monitor, all speeds, an overall sensation of car and driver as one, of which we’ll be introducing during fiscal 2007. and a feeling of exhilaration during acceleration. To Nissan is actively engaged in a wide range of achieve this state, we are continuously refining our initiatives to realize a safe driving environment, and powertrain and suspension technologies. we intend to widen our use of technology to address The last facet, “life on board,” is a concept that the hazards of driving while drunk. The severity of relates to the total car experience. We are working accidents caused by drunk driving has been constantly to perfect a luxurious interior with a increasing year after year, and naturally that attracts cockpit that makes both inhabiting and driving a car a great deal of public attention. Nissan is committed comfortable, effortless and intuitive. to preventing drunk driving both through technology and by educating drivers to the dangers of drinking The Alliance advantage and driving. Our Alliance with Renault continues to work for us in For example, we are carrying out trials of alcohol many ways at the R&D stage. More and more of interlock equipment in collaboration with the local Nissan and Renault’s total production is now covered government. This system prevents the engine from by common platforms, a trend that will continue. By starting when a sensor that analyzes the breath using the same powertrains, engines and indicates that the driver is drunk. The updated transmissions, we also avoid duplicating product CARWINGS navigation systems will also display a development and parts manufacture. drunk-driving alert when the ignition is turned on to Seamless driving pleasure is what R&D can remind the driver of the hazards of driving while provide to Nissan customers. We remain committed intoxicated by saying “Do not drive after drinking!” to creating more value for our customers through developments in the four technological areas Dynamic performance and life on board mentioned, and we believe this will in turn create The third of our four key areas is dynamic greater value for our shareholders. performance. We want every Nissan customer to
SU-LEV clean diesel Passenger seat alcohol odor sensor in the anti drink—driving concept car
Nissan Annual Report 2006-2007 37 » INVESTMENT FOR THE FUTURE
INDIA
CARLOS TAVARES Executive Vice President
Strategic and Competitive Market
The Indian market is as strategic for Nissan as with the Tamil Nadu government that secures an China was five or six years ago, and all our incentive package for the JV. Constructing such a decisions are based on that view. It’s a crucial deal ordinarily takes six to twelve months, but we did market for the future and we are investing it in less than three. That was only possible because there for the long term. Driven by strong GDP of the Renault-Nissan Alliance and the already growth in India, we expect the total industry strong dynamics between Renault and Mahindra. volume to double to over two million units We will be making two kinds of investments in annually by 2011. Chennai, including some purely related to the JV and others in assets that Nissan will own. The JV’s scope While India isn’t the most competitive market in will probably be limited to manufacturing, the land, terms of number of players, it is perhaps the world’s the power plant, and perhaps the stamping most price-competitive one. It’s a very protected workshop. All three partners are investing in the market, and highly strategic because of this huge welding lines, painting booth, trim and chassis lines, country’s potential. Due to the high import taxes, however, and to date we’ve jointly committed more you cannot import finished vehicles unless they are than 900 million dollars. near-luxury cars. We are now importing the X-TRAIL The growth in exports will be much steeper than and the Teana. However, to achieve long-term for domestic sales, so initially we’re planning to use growth and sustainability in a market like India, you Chennai for exports. Our strategy is to pursue a two- clearly cannot sell high volumes unless you step manufacturing approach, starting with one manufacture locally. dedicated line at a plant capacity of 30 jobs per hour, In the car world, the B and C segments still have which translates into 180,000 units per year. If the biggest growth potential. We will be facing everything goes well, we will go up to 45 or even 60 Korean and other Japanese competitors at first, but jobs per hour within three or four years. Although our also going up against strong local manufacturers that plans for using India as an export base aren’t have been in business for decades. The market finalized, potential targets are mature markets such leader holds a 50 percent share and imposes pricing as Europe, the U.S. and Japan. pressure on the other players. Nissan will be entering a new price band through For near-luxury cars the market is much more India. If we are frugal in the way we engineer, open, but the volumes are small—between 1,000 manufacture, and distribute our cars, we can and 10,000 cars annually, even with four or five cars compete effectively with Chinese manufacturers. in your portfolio. You can begin building your brand That means leveraging the multiplier effect by strategy and image with near-luxury models, but that combining excellent design-to-cost engineering with won’t build a complete and profitable business. At a well-designed supplier footprint, the most some point you need to push the higher-volume cars economical marketing and sales activity—in terms of by making them locally. fixed market expenses and direct incentives—and For that reason, we’ve signed a memorandum of great logistics. In the entry-car world, only the people understanding (MOU)—with Mahindra & Mahindra who excel in all those areas can survive. and Renault to create a manufacturing joint venture Using the local supplier base is cost-competitive, in Chennai. The three partners signed another MOU and for vehicles sold locally, you’re decreasing the
38 Nissan Annual Report 2006-2007 INVESTMENT FOR THE FUTURE »
currency risk between your revenue footprint and engineers, who will continue to shift their mindset. your expense footprint. That’s why it’s so important to To compete successfully in India, we need to work with local people, and avoid shadow redesign our vehicle parts to adjust for local factory localization—just assembling parts from abroad. tools, the local way of doing things, and even Our dealership strategy is to build a dedicated different materials. Nissan network without buying the assets, so we’re We will be making cars at Chennai for the going to be making deals with specific partners that will segment in which the price pressure is highest— own those dealerships. To meet our projected growth compacts. We plan to bring a family of small cars in India during the next decade, we will need to grow based on one specific small platform and our dealer network significantly. We want to hedge progressively expand it for both domestic sales and the business risk in India by having one partner for exports. There is risk, but if you don’t go to India manufacturing and a different one for distribution, there’s a certainty that you’ll be out of the low-end because understanding local business practices and market—the price band below ten or eleven labor regulations, as well as managing union thousand dollars worldwide—which is enormous. relationships and media relationships, are specific skills. Look at Russia. The market is moving so fast Using India as an LCC or leading competitive there. When we made the decision to build the country is a huge challenge. First you need to have a St. Petersburg plant, we were just on the limits of localization rate of 90 percent or higher. That’s being too late. The foreign makers are doing well possible if the powertrain is localized—at least the there by importing finished vehicles, and this could assembly and some core parts. Second, procure last for one or two more years. However, if you’re not parts from the local supplier base. Third, don’t just localized in Russia by 2009, you’ll be out for throw the specs on the table and ask your suppliers everything between ten and twenty thousand dollars. to build. That means leveraging the skills of our India is a similar game.
Delhi
Mumbai Nissan Motor India HQ Chennai The new production site in 2009
The signing of MOU with Mahindra & Mahindra, Renault and Nissan Geographic expansion – India
Nissan Annual Report 2006-2007 39 » FINANCIAL SECTION
FINANCIAL SECTION
Financial Section
40 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
Contents
Consolidated Five-Year Summary 42 Business and Other Risks 43 Corporate Governance 45 Consolidated Balance Sheets 48 Consolidated Statements of Income 50 Consolidated Statement of Changes in Net Assets 51 Consolidated Statements of Shareholders’ Equity 53 Consolidated Statements of Cash Flows 54 Notes to Consolidated Financial Statements 55 Report of Independent Auditors 84 Non-consolidated Five-Year Summary 85
Corporate Data Information on Subsidiaries and Affiliates 86 Corporate Officers 89 Information 90
Nissan Annual Report 2006-2007 41 » FINANCIAL SECTION
CONSOLIDATED FIVE-YEAR SUMMARY
Nissan Motor Co., Ltd. and Consolidated Subsidiaries Fiscal Years 2006, 2005, 2004, 2003 and 2002
Millions of U.S. dollars (Note 1) Millions of yen (except per (except per share amounts and number of employees) share amounts) 2006 2005 2004 2003 2002 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2004 Mar. 31, 2003 Mar. 31, 2007
Net sales ¥10,468,583 ¥ 9,428,292 ¥8,576,277 ¥7,429,219 ¥6,828,588 $ 88,717 Operating income 776,939 871,841 861,160 824,855 737,230 6,584 Net income 460,796 518,050 512,281 503,667 495,165 3,905 Net income per share (Note 2) 112.33 126.94 125.16 122.02 117.75 0.95 Cash dividends paid (Note 3) 131,064 105,661 94,236 74,594 50,800 1,111 Net assets (Note 4) ¥ 3,876,994 ————$ 32,856 Shareholders’ equity (Note 4) — ¥ 3,087,983 ¥2,465,750 ¥2,023,994 ¥1,808,304 — Total assets 12,402,208 11,481,426 9,848,523 7,859,856 7,349,183 105,103 Long-term debt 1,956,661 2,225,603 1,963,173 1,694,793 1,603,246 16,582 Depreciation and amortization 771,223 655,402 525,926 461,037 371,125 6,536 Number of employees 186,336 183,356 183,607 123,748 127,625
Notes: 1. Unless indicated otherwise, all dollar figures herein refer to U.S. currency. Yen amounts have been translated into U.S. dollars for convenience only, at ¥118 = $1, the approximate exchange rate on March 31, 2007. 2. Net income per share amounts are based on the weighted average number of shares of common stock outstanding during each year. Figures for net income per share are in exact yen and U.S. dollars. Number of shares outstanding as of March 31, 2007: 4,520,715,112. 3. Cash dividends during the full year by subsidiary companies to non-Nissan minority shareholders are not included. 4. Effective April 1, 2006, the Company adopted a new accounting standard for presentation of net assets in the balance sheet and related implementation guidance. Under the new accounting standard, net assets represent aggregate of previous shareholders’ equity, share subscription rights and minority interests.
Sales and Production (units) 2006 2005 2004 2003 2002 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2004 Mar. 31, 2003
Global vehicle production 3,428,981 3,340,827 3,293,339 2,883,409 2,586,602 Japan 1,191,937 1,364,868 1,481,563 1,475,063 1,444,314 United States 716,211 808,586 803,556 619,665 392,458 Mexico (Note 2) 534,841 362,591 325,086 308,322 340,658 Spain (Note 2) 266,295 193,604 142,889 116,589 84,919 United Kingdom 384,669 315,297 319,652 331,924 297,719 Others 335,028 295,881 220,593 31,846 26,534
Global unit sales (wholesale) 3,699,747 3,537,614 3,470,422 2,946,782 2,635,686 Japan 716,405 810,968 819,152 799,206 792,767 North America (Notes 1 and 2) 1,444,039 1,369,630 1,394,099 1,204,882 1,040,684 Europe (Note 2) 741,701 597,250 554,901 548,693 458,222 Others 797,602 759,766 702,270 394,001 344,013
Notes; 1. Unit sales in Mexico are included in “North America”. 2. In the annual reports for the fiscal year 2006, Sales and Production for Europe and Mexico are on January 2006 to March 2007. (In the annual reports for the fiscal years 2005, 2004 and 2003, Sales and Production for Europe and Mexico was on January to December basis.) (In the annual report for the fiscal year 2002, production for Europe and Mexico was on April to March basis.)
42 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
BUSINESS AND OTHER RISKS
With regard to disclosure in the Business Overview, Financial operations. Any sharp appreciation of the currencies of countries Information and other parts of this Securities Report, the where the Group manufactures vehicles against the yen could lead to salient items which may affect the decisions of our investors increases in both procurement and production costs which would can be grouped under the following risk factors. adversely affect the Group’s competitiveness. Any future forecasts included in the following descriptions are based on the estimates or judgment of Nissan as of June (6) Derivatives 25, 2007. The Group utilizes derivative transactions for the purpose of hedging its exposure to risks such as fluctuations in the foreign exchange (1) Economic Factors rates of its receivables and payables denominated in foreign The demand for products manufactured by the Group is affected by currencies, the interest rates of interest-bearing debt and fluctuations the economic conditions in each country or market in which they are in commodity prices. While the Group can hedge against these risks offered for sale. The Group conducts its operations all over the world by using derivatives transactions, the Group, by so doing, may miss and, in particular, in the major markets of North America, Europe and the potential gains which could result from seizing the market the Global Overseas Market, to say nothing of Japan. While the opportunities to profit from such fluctuation in exchange rates and Group strives to develop a comprehensive and integrated projection interest rates. In addition, the Group manages its exposure to credit of the global economic outlook, any greater-than-anticipated risk by limiting its counterparties to financial institutions with high downturn in one of these markets may have a significant effect on credit ratings. However, a default by any one of these counterparties the Group’s financial position and results of operations. could have an adverse effect on the Group’s financial position and operating results. (2) Risks Involved in International Activities and Overseas Expansion (7) Lawsuits and Claims The Group’s manufacturing and marketing activities outside Japan With respect to various lawsuits and claims which the Group are conducted in the United States, Europe, and general overseas encounters, the possibility exists that the position defended by the regions. The Group forecasts and evaluates a wide variety of risks Group will not be accepted and that the outcome may be significantly inherent in doing business in such overseas markets including the different from that anticipated. As a result, any such verdict or following factors, each of which may entail a greater-than-anticipated settlement could adversely affect the Group’s financial position and level of risk, thereby causing significant effects on the Group’s operating results. financial position and results of operations: • Unfavorable political or economic factors (8) Government Regulations • Legal or regulatory changes The automobile industry worldwide is influenced by a broad spectrum • Potentially adverse tax consequences of regulations governing the emission levels of exhaust fumes, fuel • Labor disputes including strikes economy guidelines, noise level limitations and safety standards, and • Difficulties in recruiting and retaining personnel the Group expects these regulations to become increasingly • Social turmoil due to terrorism, war, or other destabilizing factors. stringent. In order to ensure compliance, it may be necessary for the Group to make significant ongoing investments in these areas which (3) Research and Development would have an impact on its financial position and results of The Group’s technology must be useful, pragmatic and easy to use. operations. The Group anticipates the nature and scope of the market demand, and then prioritizes and invests in new technologies. Nonetheless, (9) Intellectual Property Rights any sudden and greater-than-anticipated changes in its business The Group owns a wide variety of proprietary technologies and has environment or in customer preferences may impact negatively on the expertise to differentiate the Group’s products making them customer satisfaction with these new technologies. unique from those of its competitors. These assets have proven their value in the growth of the Group’s business and will, no doubt, (4) Product Defects continue to be of value in the future. The Group strives to protect its The Group places a high priority on safety and does its best to intellectual property assets; however, in certain markets, the Group enhance safety from the standpoint of research and development, may encounter difficulty in fully protecting the proprietary rights to its manufacturing and sales. Although the Group takes out insurance own technologies. policies to cover product liability, this does not necessarily mean that Although the Company has established Intellectual Property Rights all potential defects and the related liabilities are fully covered. If the Management Department since April 2004 for protecting intellectual Group were to implement significant recalls in volume and amount for property rights in specific areas, strengthening activities to protect the benefit of customers’ safety, the Group would incur significant Nissan’s intellectual property rights, and abstracting new intellectual additional expenses which could adversely affect its financial position property rights and has been performing various activities to protect and results of operations. and create Nissan Brand, cases may arise where the Group finds itself unable to prohibit others from infringing on its intellectual (5) Fluctuation in Foreign Currency Exchange Rates property rights. The Group’s Japanese operations export vehicles to various countries around the world. In general, the appreciation of the yen against other (10) Natural Disasters currencies adversely affects the Group’s financial results of The Group’s corporate headquarters and many of its manufacturing operations and, on the contrary, the depreciation of the yen against facilities are located in Japan, where the statistically proven other currencies favorably affects the Group’s financial results of probability of earthquakes is higher than in many other countries. The
Nissan Annual Report 2006-2007 43 » FINANCIAL SECTION
Group has developed risk management guidelines relating to (13) Employee Retirement Benefit Expenses and Obligations earthquake damage and the CEO has organized a global task force The amounts of retirement benefit obligation and related expenses of to direct disaster prevention and recovery activities. In addition, the the Group are calculated using various actuarial assumptions Group has been strengthening its manufacturing facilities with anti- including the discount rate applied, the projected rate of return on seismic reinforcement. However, if a severe earthquake were to hit plan assets, and so forth. If the Group’s actual results differ from one of the Group’s key facilities causing a halt in production, this those assumptions or if the assumptions are changed, the resulting would adversely affect the Group’s financial position and results of effects will be accumulated and recognized systematically over future operations. periods. The cumulative effect could adversely impact the recognition of expenses and liabilities recorded in future periods. (11) Sales Financing Business Risk Sales financing is an integral part of the Group’s core business, (14) Purchase of Raw Materials and Parts providing strong support to its automotive sales, while maintaining The Group purchases raw materials and parts from many suppliers. high profitability and a sound and stable financial condition through Market conditions that the Group can’t control and whether or not the strict risk management policies. However, the sales financing suppliers can procure raw materials and parts continuously may companies have a high exposure to interest-rate risk, residual value adversely affect the Group’s financial position and results of risk, and credit risk, any one of which may adversely affect the operations. Group’s financial position and results of operations.
(12) Counterparty Credit Risk The Group does business with a variety of counterparties and manages its counterparty credit risk by conducting a comprehensive annual assessment of its customers’ financial condition based on their financial information. Nonetheless, any significant default by a counterparty would adversely affect the Group’s financial position and results of operations.
44 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
CORPORATE GOVERNANCE
Basic corporate governance policy e. The Company has the Cross Functional Team (CFT) to Corporate governance is an important responsibility of the Company’s encourage cross-functional activities. The CFT identifies management, and its most important role is to clarify the duties and tasks and challenges for the Company to address and responsibilities of the members of the management team. At the shares them with each functional line. Company, clear management objectives and policies are published f. The Company adheres to clear and transparent standards for for the benefit of the shareholders and investors, and achievements the delegation of authority to expedite internal decision mak- and results are announced early and with as much transparency as ing and clarify the process of decision making. possible. The enhancement of corporate governance by full and fair ii) Systems to ensure that the execution of duties by the Directors disclosure is the responsibility of management. and employees is compliant with applicable laws and regula- tions, as well as the Company’s Articles of Corporation. 1. The Company’s organization and the status of its internal a. We take measures to familiarize all employees of domestic control systems and foreign Group companies with the Nissan Global Code (1)The Company’s organization of Conduct. The Company’s Board of Directors makes decisions on important b. We offer an extensive range of educational opportunities, business operations and supervises the execution of duties by the including e-learning programs to ensure compliance with the respective Directors. According to a resolution at the 108th annu- Code of Conduct. al meeting of shareholders held on June 20, 2007, the number of c. The Company’s Directors and Corporate Officers are ex- Directors has been increased from 9 to 10, of which one is an pected to follow the Compliance Guide for Directors and external Director. The structure of Board of Directors is simplified Corporate Officers. in the pursuit of more efficient and flexible management, and the d. The Global Compliance Committee was established to authority for business execution is clearly delegated wherever review the status of compliance with the Code of Conduct possible to corporate officers and employees. Furthermore, the and the Compliance Guide so that they are fully obeyed. Executive Committee deliberates important corporate matters. e. The Easy Voice System is in operation to allow employees to The Company adopts a Corporate Auditor system. The Board of freely communicate their opinions, questions and requests Corporate Auditors consists of four Corporate Auditors, including directly to a dedicated department. three external Corporate Auditors. Three of the four Corporate f. Internal regulations, such as the Regulations for the Auditors are standing auditors. The Corporate Auditors conduct Prevention of Global Insider Transactions and the audits of the Directors’ business execution in accordance with the Regulations for the Management of Private Information, have auditing standards and policies determined by the Board of been established or enhanced, and educational programs are Corporate Auditors. In addition, the Company has set up the offered to raise awareness of and familiarize staff with these Corporate Auditors’ Office, the staff of which assists the regulations. Corporate Auditors in conducting their duties. g. We make ongoing efforts to reinforce internal control sys- tems to maximize the accuracy and reliability of financial (2)Status of the Company’s internal control systems reports. The Company focuses on highly transparent management inter- h. For effective and efficient oversight of the Company’s overall nally and externally, and aims to conduct consistent and efficient activities, internal audit teams are organized to oversee the management to firmly achieve its specific commitments. Under business activities at the Company and its group companies this basic policy, the Company’s Board of Directors has deter- and inspect compliance with laws and regulations, the mined “systems to ensure proper and appropriate corporate oper- Articles of Incorporation and corporate ethics on a regular ations” in accordance with the Company law and the Company basis. law Enforcement Regulations, and appointed a Director in charge iii)Regulations and systems for managing risks of loss of general internal control. The summary and status of such sys- a. We make efforts to detect risks as early as possible and tems are as follows. craft and carry out appropriate measures to address such i) Systems to ensure efficient execution of duties by the Directors risks, and we seek to minimize their incidence and the dam- a. The Company has the Board of Directors, which makes deci- age caused when they do arise. sions on important business operations and supervises the b. We make efforts to identify risks arising from the Company’s execution of duties by the respective Directors. The Board and its group companies’ activities from a variety of perspec- of Corporate Auditors conducts audits of the Directors’ tives, and prioritize them on the basis of their frequency, business execution. damage and control level. b. The size of the Board of Directors is minimized to ensure c. Members of the Executive Committee directly monitor risks efficient and flexible management, and the authority for busi- that must be controlled at the corporate or cross-functional ness execution is clearly delegated wherever possible to level by taking concrete measures, such as formulating risk corporate officers and employees. management manuals, under their leadership. c. The Company has the Executive Committee for deliberations d. Individual risks that are not at the corporate level are man- on important corporate matters. aged with the responsibility of the relevant sections by taking d. The Company has the Management Committee for delibera- necessary measures on a daily basis to minimize the occur- tions on matters specific to a certain region or business field. rence of such risks.
Nissan Annual Report 2006-2007 45 » FINANCIAL SECTION
iv)Systems for storing and managing information associated with b. Appraisal of the employees placed in the Auditors’ Office is the performance of duties by the Directors made through discussions among the Corporate Auditors. a. In accordance with the applicable laws and rules of the The transfer of and disciplinary action against such employ- Board of Directors, the minutes of the meetings of the Board ees require the prior consent of the Board of Corporate of Directors that are related to the performance of duties by Auditors. the Directors are stored and maintained in an appropriate vii) Systems for the Directors and employees to report to the manner. Corporate Auditors and other systems related to reporting to b. When the standards for delegation of authority apply for the Corporate Auditors approvals that are required in the course of business execu- a. The Corporate Auditors carry out audits according to the tion at the Company’s departments, such approvals are made annual auditing plan that they design. The plan specifies the electronically or in writing, and such records are stored and reporting of business activities by various units of the maintained in an appropriate manner. Company, according to which the Directors and the employ- c. Information as mentioned above is under the strict confiden- ees provide such reports. tiality control of the relevant sections, and is available for b. The Directors, whenever they discover facts that cause or inspection whenever so requested by the Directors and the might cause significant damage to the Company, report that Corporate Auditors out of necessity for business execution. directly to the Corporate Auditors. d. We make efforts to enhance the regulations for information c. The Directors and the employees, whenever asked by the security and storage and maintenance of written documents Corporate Auditors to report on the status of business activi- to ensure the appropriate management of information and ties, respond expeditiously. prevent leakage and inappropriate use of information. d. The Internal Audit Office delivers periodic reports on its audit v) Systems for ensuring the integrity of business activities at the plans and results to the Corporate Auditors. Company and group companies viii) Other systems for ensuring the effective performance of a. For effective, efficient and unified management of the Group, audits by the Corporate Auditors the Management Committees are organized on a cross-com- a. To strengthen independency, more than half of the pany basis. Company’s Corporate Auditors are external auditors. The b. Through the Management Committees, the Company deliv- Corporate Auditors hold regular meetings to exchange and ers information to its group companies in Japan and over- share information and opinions among themselves. They also seas, and shares its management policies with them to help meet for discussions whenever so required. expedite their decision-making processes. b. The Representative Directors, including the President, and c. The Company’s group companies maintain clear and trans- the Corporate Auditors hold regular meetings to exchange parent standards for the delegation of authority. opinions on an extensive range of issues. d. Under the Nissan Global Code of Conduct, the group com- panies formulate their own codes of conduct, and establish (3) Status of internal and corporate audits Compliance Committees to ensure legal compliance and In Japan, the Domestic Internal Audit Office, which is independent enhance corporate ethics. The Global Compliance from other sections and comprises 11 staff, conducts internal Committee carries out regular checks of the compliance situ- audits of the Company’s and its domestic consolidated sub- ation at the group companies in Japan and overseas, working sidiaries’ operations, under the President’s direct control. With to strengthen the Company’s legal and ethical functions. The respect to foreign subsidiaries, an effective, efficient and global group companies adopt the Easy Voice System to facilitate internal audit is conducted by the internal audit teams established internal reporting on violations. This system allows employees in the management companies in each region, all of which are to freely communicate their opinions, questions and requests controlled by the Chief Internal Audit Officer (CIAO). directly to their companies or the Company. The Corporate Auditors oversee the business execution of the e. The Company’s Internal Audit Office oversees the business Directors by attending the Board of Directors’ meetings and other activities at the group companies and monitors their situa- significant meetings and hearing from the Directors on business tions of compliance with laws and regulation, and the status activities regularly and whenever necessary. The Corporate of risk management. Major group companies have their own Auditors also meet regularly with the Representative Directors to internal audit teams, which carry out individual audit func- exchange opinions on an extensive range of issues. The Board of tions, under the control of the Internal Audit Office. Corporate Auditors tries to enhance audit efficiency by sharing f. The Company’s Corporate Auditors regularly exchange infor- information among the Corporate Auditors. The Corporate mation and opinions with the auditors of the group compa- Auditors also receive regular reports on the results of inspections nies to ensure effective oversight of all of Nissan’s activities and plans for future audits from, and exchange opinions with, the groupwide. internal audit teams throughout the Company’s organization, mak- vi) Matters concerning employees and their independency from ing use of this data as they craft their approaches. In addition, the the Directors when the Corporate Auditors ask employees to Corporate Auditors receive such reports from the independent assist them in carrying out their duties. auditors, as well as reports on the status of the quality control of a. The Corporate Auditors’ Office is organized as a unit to internal audits, to confirm whether their oversight is at a suitable assist the operations of the Corporate Auditors. The Office is level. staffed with employees in administrative positions, who per- form their duties under the direction of the Corporate Auditors.
46 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
(4) Audit of financial statements 2. Compensation paid to Directors and Corporate Auditors The Company appoints Ernst & Young ShinNihon as its independ- Compensation paid to the Company’s Directors consists of a fixed ent auditors. The Certified Public Accountants engaged in the amount of remuneration in cash and share appreciation rights as audits of financial statements are as follows: resolved at the 104th annual shareholders’ meeting held on June 19, The name of the Certified Public Accountants engaged in the 2003. The cash remuneration is limited to a maximum of ¥2.6 billion financial statement audit per annum as resolved at the 106th annual shareholders’ meeting held on June 21, 2005, and the amount to be paid to each Director is Designated and Engagement Partner Yasunobu Furukawa determined based on the business results and reflecting the firm’s Designated and Engagement Partner Kenji Ota global competitiveness. Designated and Engagement Partner Yoji Murohashi On the other hand, the share appreciation rights are given as Designated and Engagement Partner Takeshi Hori incentives to the Directors to stimulate their motivation to the sustain- * As the years of continuous service in audit are less than seven years for all the able and profitable growth of the Company. This incentive is linked to Certified Public Accountants, the relevant statement is omitted. the Company’s medium- or long-term business results and is limited * Ernst & Young ShinNihon has taken its own autonomous measures so that to the equivalent of 6 million shares of the Company’s common stock each Engagement Partner is not involved in the audit of the Company’s per annum. accounting for a period over a predetermined tenure. The remuneration paid to the Corporate Auditors is limited to a Assistants to the audit of the financial statements include 13 yearly amount of ¥120 million as resolved at the 106th annual share- Certified Public Accountants, 22 junior accountants and four oth- holders’ meeting held on June 21, 2005. This compensation is ers, including system specialists. designed to promote stable and transparent auditing. For the current fiscal year, the aggregate amount disbursed to the (5) Relationships between external Directors and external Corporate Directors and the Corporate Auditors was ¥2,518 million to nine Auditors and the Company Directors and ¥68 million to four Corporate Auditors. These amounts Shemaya Levy, the Company’s external Director, had served as include a total amount of ¥45 million disbursed to an external Senior Vice President of Renault from March 2002 to March Director and three external Corporate Auditors. In addition, share 2004, and Renault held 44.3% of the shares of the Company’s appreciation rights equivalent to 5.1 million shares were granted to common stock as of March 31, 2007. eight Directors. (For reference, the fair value of these shares calculat- Takeo Otsubo and Toshiyuki Nakamura—the Company’s exter- ed using the share price when the appreciation rights were granted nal Corporate Auditors—have no particular business relationship would be ¥222.30 per share.) The number of share appreciation with the Company. rights authorized to be exercised will be decided in response to the Haruo Murakami, the Company’s external Corporate Auditor, predetermined achievement degree of each Director’s performance currently serves as a Part-Time Counselor for SOFTBANK TELE- targets, with the upper limit corresponding to the aforementioned 5.1 COM Corp. There are business transactions between SOFTBANK million shares. TELECOM and the Company: SOFTBANK TELECOM provided the Company with various services and facilities such as network 3. Remuneration to independent auditors maintenance and telephone lines during the fiscal year under Remuneration paid to the independent auditors is summarized as review. However, Mr. Murakami himself does not have a direct follows: business relationship with the Company. • Remuneration for services stipulated by the Certified Public Accountant Law, Article 2, Paragraph 1 (Law No. 103, 1948), for (6) Number of Directors the current fiscal year: ¥521 million The Company stipulates in the Articles of Incorporation that the • Remuneration for other services for the current fiscal year: ¥17 million number of Directors of the Company shall be six or more. 4. Outline of the limited liability contract with external Directors (7) Resolution requirement for election of Directors and Corporate Auditors The Company stipulates in the Articles of Incorporation that resolu- The Company’s external Directors and Corporate Auditors hold a limit- tions for the election of Directors shall be adopted by a majority vote ed liability contract with the Company as stipulated by Article 423, of the shareholders present who hold one-third (1/3) or more of the paragraph 1, of the Company law. The contract prescribes that the voting rights of shareholders entitled to exercise voting rights. maximum amount for which the external directors and auditors are liable shall be the higher of ¥5 million or the lowest limit specified (8) Decision-making organization with respect to interim dividend by statute. The Company stipulates in the Articles of Incorporation that the deci- sion on the payment of interim dividend shall be made by the resolu- tion of the Board of Directors for the purpose of returning profit to shareholders in a flexible manner.
(9) Decision-making organization with respect to acquisition of own shares The Company stipulates in the Articles of Incorporation that the Company may, by resolution of the Board of Directors, acquire its own shares through market trading etc. as provided for in Article 165, Paragraph 2 of the Corporation Law for the purpose of implementing the Company’s capital strategy in a flexible manner.
Nissan Annual Report 2006-2007 47 » FINANCIAL SECTION
CONSOLIDATED BALANCE SHEETS
Nissan Motor Co., Ltd. and Consolidated Subsidiaries Fiscal years 2006 and 2005
Thousands of Millions of yen U.S. dollars (Note 3) 2006 2005 2006 ASSETS As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007
Current assets: Cash and cash equivalents (Note 19) ¥ 469,388 ¥ 404,212 $ 3,977,864 Short-term investments (Note 19) 16,792 22,149 142,305 Receivables, less allowance for doubtful receivables (Notes 4 and 8) 4,140,259 3,989,748 35,086,941 Inventories (Note 5) 1,004,671 856,499 8,514,161 Other current assets 861,776 749,646 7,303,187 Total current assets 6,492,886 6,022,254 55,024,458
Property, plant and equipment, at cost (Notes 6, 8 and 16) 9,226,537 8,516,356 78,190,992 Less accumulated depreciation (4,349,349) (4,077,548) (36,858,890) Property, plant and equipment, net 4,877,188 4,438,808 41,332,102
Investments and other assets (Notes 8 and 19) Investment securities: Unconsolidated subsidiaries and affiliates 362,407 351,667 3,071,246 Other 23,805 51,719 201,737 Other assets 645,922 616,978 5,473,915 Total investments and other assets 1,032,134 1,020,364 8,746,898 Total assets ¥12,402,208 ¥11,481,426 $105,103,458
48 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
Thousands of Millions of yen U.S. dollars (Note 3) 2006 2005 2006 LIABILITIES AND NET ASSETS (SHAREHOLDERS’ EQUITY) As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Current liabilities: Short-term borrowings and current portion of long-term debt (Note 8) ¥3,147,832 ¥2,592,289 $26,676,542 Notes and accounts payable (Note 7) 1,692,523 1,532,320 14,343,415 Accrual for warranty costs 92,279 81,112 782,025 Accrued income taxes (Note 13) 71,865 105,987 609,025 Other current liabilities 570,820 540,001 4,837,459 Total current liabilities 5,575,319 4,851,709 47,248,466 Long-term liabilities: Long-term debt (Note 8) 1,956,661 2,225,603 16,581,873 Accrued retirement benefits (Note 9) 194,494 267,695 1,648,254 Accrual for warranty costs 130,111 132,107 1,102,636 Other long-term liabilities 668,629 630,436 5,666,348 Total long-term liabilities 2,949,895 3,255,841 24,999,111 Minority interests — 285,893 — Net assets (Note 10): Common stock, without par value: Authorized — 6,000,000,000 shares; Issued — 4,520,715,112 shares in 2006 605,814 — 5,134,017 Capital surplus 804,470 — 6,817,542 Retained earnings 2,402,726 — 20,362,085 Less treasury stock, at cost; 409,296,746 shares in 2006 (226,394) — (1,918,593) Total shareholders’ equity 3,586,616 — 30,395,051 Valuation, translation adjustments and others (41,379) — (350,670) Share subscription rights 2,711 — 22,975 Minority interests 329,046 — 2,788,525 Total net assets 3,876,994 — 32,855,881 Commitments and contingencies (Note 17) Total liabilities and net assets ¥12,402,208 — $105,103,458 Shareholders’ equity (Notes 10 and 14): Common stock, without par value: Authorized — 6,000,000,000 shares; Issued — 4,520,715,112 shares in 2005 — 605,814 — Capital surplus — 804,470 — Retained earnings — 2,116,825 — Unrealized holding gain on securities — 14,340 — Translation adjustments — (204,313) — — 3,337,136 — Less treasury stock, at cost; 422,762,529 shares in 2005 — (249,153) — Total shareholders’ equity — 3,087,983 — Commitments and contingencies (Note 17) Total liabilities and shareholders’ equity — ¥11,481,426 —
See notes to consolidated financial statements.
Nissan Annual Report 2006-2007 49 » FINANCIAL SECTION
CONSOLIDATED STATEMENTS OF INCOME
Nissan Motor Co., Ltd. and Consolidated Subsidiaries Fiscal Years 2006, 2005 and 2004
Thousands of Millions of yen U.S. dollars (Note 3) 2006 2005 2004 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2007
Net sales ¥10,468,583 ¥9,428,292 ¥8,576,277 $88,716,805 Cost of sales (Notes 6 and 11) 8,027,186 7,040,987 6,351,269 68,027,000 Gross profit 2,441,397 2,387,305 2,225,008 20,689,805 Selling, general and administrative expenses (Notes 6 and 11) 1,664,458 1,515,464 1,363,848 14,105,576 Operating income 776,939 871,841 861,160 6,584,229 Other income (expenses): Interest income 24,313 17,359 14,934 206,042 Interest expense (30,664) (25,646) (26,656) (259,864) Equity in earnings of unconsolidated subsidiaries and affiliates 20,187 37,049 36,790 171,076 Other, net (Note 12) (93,343) (91,562) (92,995) (791,042) (79,507) (62,800) (67,927) (673,788) Income before income taxes and minority interests 697,432 809,041 793,233 5,910,441
Income taxes (Note 13): Current 202,328 274,463 179,226 1,714,644 Deferred 9,834 (20,055) 78,837 83,339 212,162 254,408 258,063 1,797,983 Minority interests (24,474) (36,583) (22,889) (207,407) Net income (Note 18) ¥ 460,796 ¥ 518,050 ¥ 512,281 $ 3,905,051
See notes to consolidated financial statements.
50 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Nissan Motor Co., Ltd. and Consolidated Subsidiaries Fiscal Year 2006
Millions of yen 2005 2006 As of Mar. 31, 2006 Changes in fiscal year 2006 Mar. 31, 2007 Net changes Bonuses Changes in items to in the Changes other than Reclas- directors Disposal Purchases scope in the those in Total of As sification Cash and of of Changes of scope share- changes previously (Note 2 As dividends statutory Net treasury treasury due to consoli- of equity holders’ in reported (d)) restated paid auditors income stock stock merger dation method equity FY2006 Common stock ¥ 605,814 —¥ 605,814 ————————— —¥ 605,814 Capital surplus 804,470 — 804,470 ————————— —804,470 Retained earnings 2,116,825 ¥(35,664) 2,081,161 ¥(131,064) ¥(560)¥460,796 ¥(3,477) — ¥361 ¥(3,728) ¥(763) — ¥321,565 2,402,726 Unrealized holding gain on securities 14,340 (14,340) — ————————— — — Translation adjustments (204,313) 204,313 — ————————— — — Treasury stock (Note 10) * (249,153) — (249,153) — — — 33,134 ¥(10,375) ————22,759 (226,394) Total shareholders’ equity ¥3,087,983 154,309 3,242,292 (131,064) (560) 460,796 29,657 (10,375) 361 (3,728) (763) — 344,324 3,586,616 Unrealized holding gain on securities — 14,340 14,340 ————————¥(8,514) (8,514) 5,826 Unrealized gain from hedging instruments — — — ————————1,817 1,817 1,817 Adjustment for revaluation of the accounts of the consolidated subsidiaries based on general price level accounting — 49,915 49,915 ————————19,008 19,008 68,923 Land revaluation of foreign subsidiaries — 5,134 5,134 ————————(39)(39)5,095 Unfunded retirement benefit obligation of foreign subsidiaries — (19,385) (19,385) ————————5,559 5,559 (13,826) Translation adjustments — (204,313) (204,313) ————————95,099 95,099 (109,214) Total valuation, translation adjustments and others — (154,309) (154,309) ————————112,930 112,930 (41,379) Share subscription rights — 3,144 3,144 ————————(433) (433) 2,711 Minority interests — ¥285,893 285,893 ————————43,153 43,153 329,046 Total net assets — —¥3,377,020 ¥(131,064) ¥(560)¥460,796 ¥29,657 ¥(10,375) ¥361 ¥(3,728) ¥(763)¥155,650 ¥499,974 ¥3,876,994
* Treasury stock has decreased by 13,465,783 shares from 422,762,529 shares at March 31, 2006 to 409,296,746 shares at March 31, 2007.
Nissan Annual Report 2006-2007 51 » FINANCIAL SECTION
Thousands of U.S.dollars 2005 2006 As of Mar. 31, 2006 Changes in fiscal year 2006 Mar. 31, 2007 Net changes Bonuses Changes in items to in the Changes other than Reclas- directors Disposal Purchases scope in the those in Total of As sification Cash and of of Changes of scope share- changes previously (Note 2 As dividends statutory Net treasury treasury due to consoli- of equity holders’ in reported (d)) restated paid auditors income stock stock merger dation method equity FY2006 Common stock $ 5,134,017 — $ 5,134,017 — — — — — — — — — — $ 5,134,017 Capital surplus 6,817,542 — 6,817,542 — — — — — — — — — — 6,817,542 Retained earnings 17,939,195 $(302,237) 17,636,958 $(1,110,712) $(4,746) $3,905,051 $(29,466) — $3,059 $(31,593) $(6,466) — $2,725,127 20,362,085 Unrealized holding gain on securities 121,525 (121,525) — — — — — — — — — — — — Translation adjustments (1,731,466) 1,731,466 — — — — — — — — — — — — Treasury stock (Note 10) * (2,111,466) — (2,111,466) — — — 280,797 $(87,924) — — — — 192,873 (1,918,593) Total shareholders’ equity $26,169,347 1,307,704 27,477,051 (1,110,712) (4,746) 3,905,051 251,331 (87,924) 3,059 (31,593) (6,466) — 2,918,000 30,395,051 Unrealized holding gain on securities — 121,525 121,525 — — — — — — — — $(72,153) (72,153) 49,372 Unrealized gain from hedging instruments — — — — — — — — — — — 15,398 15,398 15,398 Adjustment for revaluation of the accounts of the consolidated subsidiaries based on general price level accounting — 423,008 423,008 — — — — — — — — 161,085 161,085 584,093 Land revaluation of foreign subsidiaries — 43,508 43,508 — — — — — — — — (330) (330) 43,178 Unfunded retirement benefit obligation of foreign subsidiaries — (164,279) (164,279) — — — — — — — — 47,110 47,110 (117,169) Translation adjustments — (1,731,466) (1,731,466) — — — — — — — — 805,924 805,924 (925,542) Total valuation, translation adjustments and others — (1,307,704) (1,307,704) — — — — — — — — 957,034 957,034 (350,670) Share subscription rights — 26,644 26,644 — — — — — — — — (3,669) (3,669) 22,975 Minority interests — $2,422,822 2,422,822 — — — — — — — — 365,703 365,703 2,788,525 Total net assets — — $28,618,813 $(1,110,712) $(4,746) $3,905,051 $251,331 $(87,924) $3,059 $(31,593) $(6,466) $1,319,068 $4,237,068 $32,855,881
* Treasury stock has decreased by 13,465,783 shares from 422,762,529 shares at March 31, 2006 to 409,296,746 shares at March 31, 2007. See notes to consolidated financial statements.
52 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Nissan Motor Co., Ltd. and Consolidated Subsidiaries Fiscal Years 2005 and 2004
Millions of yen 2005 2004 For the years ended Mar. 31, 2006 Mar. 31, 2005
Common stock Balance at beginning and end of the year (4,520,715,112 shares) ¥ 605,814 ¥ 605,814 Capital surplus Balance at beginning and end of the year ¥ 804,470 ¥ 804,470 Retained earnings Balance at beginning of the year ¥1,715,099 ¥1,286,299 Net income 518,050 512,281 Cash dividends paid (105,661) (94,236) Bonuses to directors and statutory auditors (573) (404) Other (Note 14) (10,090) 11,159 Balance at end of the year ¥2,116,825 ¥1,715,099 Unrealized holding gain on securities Balance at beginning of the year ¥ 7,355 ¥ 4,392 Net change during the year 6,985 2,963 Balance at end of the year ¥ 14,340 ¥ 7,355 Translation adjustments Balance at beginning of the year ¥ (400,099) ¥ (431,744) Net change during the year 195,786 31,645 Balance at end of the year ¥ (204,313) ¥ (400,099) Treasury stock Balance at beginning of the year ¥ (266,889) ¥ (245,237) Net change during the year 17,736 (21,652) Balance at end of the year ¥ (249,153) ¥ (266,889)
Total shareholders’ equity ¥3,087,983 ¥2,465,750
See notes to consolidated financial statements.
Nissan Annual Report 2006-2007 53 » FINANCIAL SECTION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nissan Motor Co., Ltd. and Consolidated Subsidiaries Fiscal Years 2006, 2005 and 2004
Thousands of Millions of yen U.S. dollars (Note 3) 2006 2005 2004 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2007 Operating activities Income before income taxes and minority interests ¥ 697,432 ¥ 809,041 ¥ 793,233 $ 5,910,441 Depreciation and amortization relating to: Leased assets 305,402 236,572 157,346 2,588,153 Other assets 465,821 418,830 368,580 3,947,636 Impairment loss 22,673 26,827 — 192,144 Provision for (reversal of) allowance for doubtful receivables 9,996 4,561 (6,464) 84,712 Loss on devaluation of securities 459 212 128 3,890 Interest and dividend income (25,546) (21,080) (16,274) (216,492) Interest expense 145,547 104,265 73,220 1,233,449 Gain on sales of tangible fixed assets (28,485) (16,742) (24,038) (241,398) Loss on disposal of fixed assets 25,403 22,213 20,115 215,280 Gain on sales of securities (3,566) (40,223) (7,232) (30,220) Amortization of net retirement benefit obligation at transition 10,928 11,145 11,795 92,610 Provision for accrued retirement benefits 55,438 63,564 65,103 469,814 Retirement benefits paid (157,821) (314,349) (82,924) (1,337,466) Other 12,118 13,587 (115) 102,695 Changes in operating assets and liabilities: Notes and accounts receivable (114,960) 90,391 15,494 (974,237) Finance receivables 44,341 (311,685) (794,349) 375,771 Inventories (88,765) (117,120) (108,903) (752,246) Notes and accounts payable 54,368 88,129 152,213 460,744 Subtotal 1,430,783 1,068,138 616,928 12,125,280 Interest and dividends received 24,622 21,034 16,098 208,661 Interest paid (143,650) (102,219) (71,318) (1,217,373) Income taxes paid (268,928) (229,084) (192,293) (2,279,051) Net cash provided by operating activities 1,042,827 757,869 369,415 8,837,517 Investing activities Decrease (increase) in short-term investments 7,210 7,078 (12,370) 61,102 Purchases of investment securities (17,117) (23,930) (31,896) (145,059) Proceeds from sales of investment securities 36,486 46,060 3,098 309,203 Long-term loans made (12,625) (3,549) (4,019) (106,992) Collection of long-term loans receivable 4,211 3,225 4,860 35,686 Purchases of fixed assets (546,848) (471,029) (461,146) (4,634,305) Proceeds from sales of property, plant and equipment 72,308 55,790 71,256 612,780 Purchases of leased vehicles (957,356) (953,285) (590,605) (8,113,186) Proceeds from sales of leased vehicles 304,912 264,124 173,812 2,584,000 Purchase of subsidiaries’ shares resulting in changes in scope of consolidation (Note 15) (1,391) — (1,292) (11,788) Proceeds from sales of subsidiaries’ shares resulting in changes in scope of consolidation (Note 15) 1,308 4,705 7,697 11,085 Additional acquisition of shares of consolidated subsidiaries — (16,020) (500) — Other (5,685) (25,924) (23,930) (48,179) Net cash used in investing activities (1,114,587) (1,112,755) (865,035) (9,445,653) Financing activities Increase in short-term borrowings 492,538 376,048 666,191 4,174,051 Increase in long-term borrowings 969,461 883,548 1,050,841 8,215,771 Increase in bonds and debentures 123,730 390,706 140,663 1,048,559 Repayment of long-term borrowings (1,102,015) (809,466) (765,588) (9,339,110) Redemption of bonds and debentures (190,515) (200,840) (379,946) (1,614,534) Proceeds from minority shareholders 260 1,321 30 2,203 Purchases of treasury stock (10,375) (22,208) (33,366) (87,924) Proceeds from sales of treasury stock 29,087 26,423 6,816 246,500 Repayment of lease obligations (66,775) (76,071) (69,244) (565,890) Cash dividends paid (131,064) (105,661) (94,236) (1,110,712) Cash dividends paid to minority shareholders (7,453) (6,487) (678) (63,161) Other 33 606 (437) 281 Net cash provided by financing activities 106,912 457,919 521,046 906,034 Effect of exchange rate changes on cash and cash equivalents 16,640 11,389 4,369 141,017 Increase in cash and cash equivalents 51,792 114,422 29,795 438,915 Cash and cash equivalent at beginning of the year 404,212 289,784 194,164 3,425,525 Increase due to inclusion in consolidation 13,384 6 65,825 113,424 Cash and cash equivalent at end of the year ¥ 469,388 ¥ 404,212 ¥ 289,784 $ 3,977,864
See notes to consolidated financial statements.
54 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nissan Motor Co., Ltd. and Consolidated Subsidiaries Fiscal year 2006 (Year ended March 31, 2007)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation (f) Short-term investments and investment securities Nissan Motor Co., Ltd. (the “Company”) and its domestic subsidiaries Securities other than equity securities issued by subsidiaries and maintain their books of account in conformity with the financial affiliates are classified into three categories: trading, held-to-maturity accounting standards of Japan, and its foreign subsidiaries maintain or other securities. Trading securities are carried at fair value and their books of account in conformity with those of their countries of held-to-maturity securities are carried at amortized cost. Marketable domicile. securities classified as other securities are carried at fair value with The accompanying consolidated financial statements have been changes in unrealized holding gain or loss, net of the applicable prepared in accordance with accounting principles generally income taxes, included directly in net assets (shareholders’ equity in accepted in Japan, which are different in certain respects as to the 2005). Non-marketable securities classified as other securities are application and disclosure requirements of International Financial carried at cost. Cost of securities sold is determined by the moving Reporting Standards, and have been compiled from the consolidated average method. financial statements prepared by the Company as required by the Securities and Exchange Law of Japan. (g) Property, plant and equipment and depreciation Certain amounts in the prior years’ financial statements have been Depreciation of property, plant and equipment of the Company and its reclassified to conform to the current year’s presentation. consolidated subsidiaries is calculated principally by the straight-line method based on the estimated useful lives and the residual value (b) Principles of consolidation and accounting for investments determined by the Company. Significant renewals and additions are in unconsolidated subsidiaries and affiliates capitalized at cost. Maintenance and repairs are charged to income. The accompanying consolidated financial statements include the accounts of the Company and any significant companies controlled (h) Leases directly or indirectly by the Company. Companies over which the Noncancellable lease transactions that transfer substantially all risks Company exercises significant influence in terms of their operating and rewards associated with the ownership of assets are accounted and financial policies have been included in the consolidated financial for as finance leases. All other lease transactions are accounted for statements on an equity basis. All significant intercompany balances as operating leases and relating payments are charged to income as and transactions have been eliminated in consolidation. incurred. The financial statements of the Company’s subsidiaries in certain foreign countries including Mexico have been prepared based on (i) Retirement benefits general price-level accounting. The related revaluation adjustments Accrued retirement benefits and prepaid pension cost for employees made to reflect the effect of inflation in those countries in the have been recorded mainly at the amount calculated based on the accompanying consolidated financial statements have been charged retirement benefit obligation and the fair value of the pension plan or credited to operations and are directly reflected in valuation, assets as of balance sheet date, as adjusted for unrecognized net translation adjustments and others (retained earnings in 2005). retirement benefit obligation at transition, unrecognized actuarial gain Investments in subsidiaries and affiliates which are not or loss, and unrecognized prior service cost. The retirement benefit consolidated or accounted for by the equity method are carried at obligation is attributed to each period by the straight-line method over cost or less. Where there has been a permanent decline in the value the estimated years of service of the eligible employees. The net of such investments, the Company has written down the investments. retirement benefit obligation at transition is being amortized Differences between the cost and the underlying net equity at fair principally over a period of 15 years by the straight-line method. value of investments in consolidated subsidiaries and in companies Actuarial gain or loss is amortized in the year following the year in which are accounted for by the equity method have been amortized which the gain or loss is recognized primarily by the straight-line by the straight-line method over periods not exceeding 20 years. method over periods which are shorter than the average remaining years of service of the employees. Certain foreign consolidated (c) Foreign currency translation subsidiaries have adopted the corridor approach for the amortization The balance sheet accounts of the foreign consolidated subsidiaries of actuarial gain and loss. are translated into yen at the rates of exchange in effect at the Prior service cost is being amortized as incurred by the straight-line balance sheet date, except for the components of net assets method over periods which are shorter than the average remaining excluding minority interests (shareholders’ equity in 2005) which are years of service of the employees. translated at their historical exchange rates. Revenue and expense accounts are translated at the average rate of exchange in effect (j) Income taxes during the year. Differences arising from the translation are Deferred tax assets and liabilities have been recognized in the presented as translation adjustments and minority interests in its consolidated financial statements with respect to the differences consolidated financial statements. between financial reporting and the tax bases of the assets and liabilities, and were measured using the enacted tax rates and laws (d) Cash equivalents which will be in effect when the differences are expected to reverse. All highly liquid investments with maturity of three months or less when purchased are considered cash equivalents. (k) Research and development costs Research and development costs are charged to income when (e) Inventories incurred. Inventories are stated principally at the lower of cost or market, cost being determined principally by the first-in, first-out method. (l) Revenue recognition Revenue is generally recognized on sales of products at the time of shipment.
Nissan Annual Report 2006-2007 55 » FINANCIAL SECTION
(m) Derivative financial instruments (n) New Accounting Standards The Company and certain consolidated subsidiaries have entered into In May 2006, the Accounting Standards Board of Japan issued a various derivative transactions in order to manage certain risk arising new accounting guideline to harmonize the accounting policies of from adverse fluctuations in foreign currency exchange rates, interest overseas subsidiaries in the preparation of consolidated financial rates, and stock and commodity prices. Derivative financial statements. This accounting standard will become effective the fiscal instruments are carried at fair value with changes in unrealized gain year commencing on or subsequent to April 1, 2008. The Company is or loss charged or credited to operations, except for those which currently assessing the impact of the adoption of this standard on its meet the criteria for deferral hedge accounting under which consolidated financial statements. unrealized gain or loss is deferred as a component of net assets (an asset or a liability in 2005). See Note 2(a).
2. ACCOUNTING CHANGES (a) Until the year ended March 31, 2005, the Company and its guidance. The effect of this change was to decrease operating domestic consolidated subsidiaries applied special treatment to income, income before income taxes and minority interests by forward foreign exchange contracts entered into to hedge forecasted ¥1,037 million ($8,788 thousand) from the corresponding amounts sales denominated in foreign currencies. These contracts qualified for which would have been recorded if the previous method had been deferral hedge accounting as these sales and accounts receivable followed. The effect of this change on segment information is were translated and reflected in the consolidated financial statements explained in Note 21. at their corresponding contracted rates. Effective April 1, 2005, the Company and its domestic subsidiaries (d) Effective April 1, 2006, the Company adopted a new accounting changed their method of accounting for such sales, accounts standard for presentation of net assets in the balance sheet and receivable and forward foreign exchange contracts and began related implementation guidance. Shareholders’ equity under the applying the benchmark method. Under this method, sales previous presentation method amounted to ¥3,543,420 million denominated in foreign currencies are translated into Japanese yen ($30,028,983 thousand) as of March 31, 2007. In addition, effective at the exchange rates in effect at each transaction date and the the year ended March 31, 2007, the Company is required to prepare related accounts receivable are translated at the exchange rates in consolidated statement of changes in net assets instead of effect at the balance sheet dates, with the related exchange consolidated statements of shareholders’ equity. differences charged or credited to income, whereas the forward foreign exchange contracts are carried at fair value. This change was (e) Until the year ended March 31, 2006, since the difference made as a result of the implementation of a newly modified internal between the fiscal year end of the parent company and those of 55 operating system with respect to forward foreign exchange contracts consolidated subsidiaries was within three months, the operating in order to achieve a better presentation of gain or loss related to results of those subsidiaries were consolidated by using their open derivatives positions. The effect of this change on the financial statements as of their respective fiscal year ends. Effective consolidated financial statements was immaterial for the year ended the year ended March 31, 2007, 22 consolidated subsidiaries have March 31, 2006. been consolidated by using their financial statements as of the parent’s fiscal year end prepared solely for consolidation purposes (b) Effective April 1, 2005, the Company and its domestic instead of those as of their respective fiscal year end. This change consolidated subsidiaries adopted a new accounting standard for the was made, upon the completion of the internal reporting systems impairment of fixed assets. The Group bases its grouping for which allow those subsidiaries to accelerate their financial statement assessing impairment losses on fixed assets on its business closing process, in order to make the disclosures of the consolidated segments (automobiles and sales finance) and geographical financial statements more meaningful by unifying the fiscal year. In segments. However, the Group determines whether or not an asset is addition, 33 consolidated subsidiaries have also changed their fiscal impaired on an individual asset basis depending on whether the asset year end to March 31 for the same reason. is deemed idle or if it is scheduled to be disposed of. Accordingly, the operating results for the 15-month period from As a result of the adoption of this new standard, the Company and January 1, 2006 to March 31, 2007 of the 55 consolidated its domestic consolidated subsidiaries have recognized an impairment subsidiaries have been included in the consolidated financial loss in the amount of ¥26,827 million on idle assets and assets to be statements for the year ended March 31, 2007. disposed of due to a significant decline in their market value by As a result, net sales, operating income, income before income reducing their book value to the respective net realizable value of taxes and minority interests and net income increased by ¥767,606 each asset. Accordingly, income before income taxes and minority million ($6,505,136 thousand), ¥21,443 million ($181,720 interests decreased by the same amount for the year ended March thousand), ¥15,661 million ($132,720 thousand) and ¥11,589 31, 2006 from the corresponding amount which would have been million ($98,212 thousand), respectively, over the corresponding recorded under the previous method. The effect of this change on amounts which would have been reported under the previous method. segment information is explained in Note 21. The effect of this change on segment information is explained in Note 21. (c) Effective April 1, 2006, the Company adopted a new accounting standard for share-based payment and related implementation
56 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
3. U.S. DOLLAR AMOUNTS Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of ¥118 = US$1.00, the approximate rate of exchange in effect on March 31, 2007, has been used. The inclusion of such amounts is not intended to imply that yen amounts have been or could be readily converted, realized or settled in U.S. dollars at that or any other rate.
4. RECEIVABLES Receivables at March 31, 2007 and 2006 consisted of the following: Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Notes and accounts receivable...... ¥ 679,119 ¥ 488,600 $ 5,755,246 Finance receivables...... 3,557,223 3,589,127 30,145,958 Less allowance for doubtful receivables...... (96,083) (87,979) (814,263) ...... ¥4,140,259 ¥3,989,748 $35,086,941
Finance receivables principally represent receivables from customers on loans made by financing subsidiaries in connection with sales of automobiles.
5. INVENTORIES Inventories at March 31, 2007 and 2006 were as follows: Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Finished products...... ¥ 712,696 ¥607,149 $6,039,797 Work in process and other...... 291,975 249,350 2,474,364 ...... ¥1,004,671 ¥856,499 $8,514,161
6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at March 31, 2007 and 2006 is summarized as follows: Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Land...... ¥ 733,651 ¥ 740,716 $ 6,217,382 Buildings and structures...... 1,531,902 1,513,774 12,982,220 Machinery and equipment...... 6,808,155 6,021,596 57,696,229 Construction in progress...... 152,829 240,270 1,295,161 ...... ¥9,226,537 ¥8,516,356 $78,190,992
Nissan Annual Report 2006-2007 57 » FINANCIAL SECTION
The following table set forth the acquisition costs and related accumulated amortization of assets recorded under finance leases included in the above balances: Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Buildings and structures...... ¥ 16,346 ¥ 15,570 $ 138,525 Machinery and equipment...... 275,258 322,391 2,332,695 ...... 291,604 337,961 2,471,220 Accumulated amortization...... (160,851) (187,405) (1,363,144) ...... ¥130,753 ¥150,556 $1,108,076
Depreciation and amortization of property, plant and equipment for each of the three years in the period ended March 31, 2007 was as follows: Thousands of Millions of yen U.S. dollars 2006 2005 2004 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2007 Depreciation and amortization...... ¥705,380 ¥635,344 ¥514,261 $5,977,797
The Company and certain domestic consolidated subsidiaries have recognized an impairment loss on idle assets and assets to be disposed of due to a significant decline in their market value by reducing their net book value to the respective net realizable value of each asset. Such loss amounted to ¥22,673 million ($192,144 thousand) for the year ended March 31, 2007 which consisted of losses on idle assets of ¥9,298 million ($78,797 thousand) (land — ¥6,907 million and building and structures—¥2,305 million, and machinery and equipment—¥86 million) and losses on assets to be sold of ¥1,078 million ($9,136 thousand) (land—¥467 million and buildings and structures—¥611million), and losses of ¥12,297 million ($104,212 thousand) on assets disposed of (land—¥7,476 million and buildings and structures—¥4,821 million). The impairment loss of ¥26,827 million for the year ended March 31, 2006 consisted of losses on idle assets of ¥19,190 million (land— ¥17,186 million, buildings—¥1,525 million and others—¥479 million) and losses on assets to be sold of ¥7,637 million (land—¥4,654 million, buildings and structures—¥1,434 million, and others—¥1,549 million). The net realizable value of the idle assets and those to be disposed of was based on their appraisal value and that of the assets to be sold was estimated based on their respective sales contracts.
7. NOTES AND ACCOUNTS PAYABLE Notes and accounts payable at March 31, 2007 and 2006 consisted of the following:
Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Notes and accounts payable...... ¥1,103,186 ¥ 983,594 $ 9,349,034 Accrued expenses and other...... 589,337 548,726 4,994,381 ...... ¥1,692,523 ¥1,532,320 $14,343,415
8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT At March 31, 2007 and 2006, short-term borrowings and the current portion of long-term debt consisted of the following:
Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Loans, principally from banks...... ¥1,056,319 ¥1,159,743 $ 8,951,856 Commercial paper...... 965,238 366,998 8,179,983 Current portion of long-term debt (excluding lease obligations)...... 1,075,854 1,007,025 9,117,407 Current portion of lease obligations...... 50,421 58,523 427,296 ...... ¥3,147,832 ¥2,592,289 $26,676,542
58 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
The annual weighted-average interest rates applicable to short-term borrowings and current portion of long-term debt excluding lease obligations outstanding at March 31, 2007 and 2006 were 3.1% and 2.8%, respectively. The annual weighted-average interest rates applicable to current portion of lease obligations outstanding at March 31, 2007 were 1.3%. At March 31, 2007 and 2006, long-term debt consisted of the following: Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Debt with collateral: Loans from banks and other financial institutions due through 2011 with weighted-average interest rate of 4.8% ...... ¥1,423,586 ¥1,583,358 $12,064,288 Debt without collateral: Loans from banks and other financial institutions due through 2026 with weighted-average interest rate of 2.9% ...... 718,923 680,536 6,092,568 Bonds in yen due through 2010 at rates ranging from 0.4% to 2.4%...... 557,977 642,980 4,728,619 Straight Bonds in U.S. dollars due through 2011 at rates ranging from 4.6% to 5.6% ...... 206,391 205,573 1,749,076 Medium-term notes in U.S. dollars due through 2008 at rates ranging from 5.4% to 5.6%...... 11,159 29,711 94,568 Euro medium-term notes in U.S. dollars and Euro due through 2006 at rates ranging from 4.1% to 4.7%...... — 15,416 — Medium-term notes in Mexican pesos due through 2011 at rates ranging from 7.4% to 7.8%...... 53,650 — 454,661 Other...... 1,689 3,346 14,313 Lease obligations ...... 109,561 130,231 928,483 ...... 3,082,936 3,291,151 26,126,576 Less current portion...... 1,126,275 1,065,548 9,544,703 ...... ¥1,956,661 ¥2,225,603 $16,581,873
The maturities of long-term debt excluding lease obligations are summarized as follows: Thousands of Year ending Mar. 31, Millions of yen U.S. dollars 2008...... ¥1,075,854 $ 9,117,407 2009...... 739,319 6,265,415 2010...... 636,846 5,397,000 2011 and thereafter...... 521,576 4,420,136 ...... ¥2,973,595 $25,199,958
The discounts on bonds of ¥220 million ($1,864 thousand) at March 31, 2007 are reported in the consolidated balance sheet as a direct deduction from the face amount of the bonds. The maturities of lease obligations are summarized as follows: Thousands of Year ending Mar. 31, Millions of yen U.S. dollars 2008...... ¥ 50,421 $427,297 2009...... 22,839 193,551 2010...... 10,486 88,864 2011 and thereafter...... 25,815 218,771 ...... ¥109,561 $928,483
The assets pledged as collateral for short-term borrowings of ¥612,193 million ($5,188,076 thousand) and long-term debt of ¥1,422,841 million ($12,057,975 thousand) at March 31, 2007 were as follows: Thousands of Millions of yen U.S. dollars Receivables...... ¥1,378,786 $11,684,627 Property, plant and equipment, at net book value ...... 1,057,988 8,966,000 Other assets ...... 445 3,771 ...... ¥2,437,219 $20,654,398
In addition to the above, at March 31, 2007, finance receivables of ¥55,066 million ($466,661 thousand) which have been eliminated from the accompanying consolidated balance sheet were pledged as collateral for short-term borrowings of ¥54,957 million ($465,737 thousand).
Nissan Annual Report 2006-2007 59 » FINANCIAL SECTION
9. RETIREMENT BENEFIT PLANS The Company and most of consolidated subsidiaries have defined benefit plans and/or defined contribution plans. The Company and its domestic consolidated subsidiaries have defined benefit plans, i.e., welfare pension fund plans (“WPFP”), tax-qualified pension plans and lump-sum payment plans, covering substantially all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rates of pay, length of service, and the conditions under which termination occurs. Certain consolidated subsidiaries transferred a portion of the benefit obligations under the above defined benefit plans to defined contribution plans during the years ended March 31, 2007 and 2006. In this connection, the pension assets of ¥4,493 million ($38,076 thousand) and ¥45,762 million were also transferred to the defined contribution plans during the years ended March 31, 2007 and 2006, respectively. The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidated balance sheets as of March 31, 2007 and 2006 for the Company ’s and the consolidated subsidiaries’ defined benefit plans: Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Retirement benefit obligation...... ¥(1,273,725) ¥(1,239,004) $(10,794,280) Plan assets at fair value...... 1,008,771 817,371 8,548,907 Unfunded retirement benefit obligation ...... (264,954) (421,633) (2,245,373) Unrecognized net retirement benefit obligation at transition ...... 89,822 99,966 761,203 Unrecognized actuarial loss...... 81,493 120,920 690,619 Unrecognized prior service cost...... (54,049) (66,714) (458,042) Net retirement benefit obligation ...... (147,688) (267,461) (1,251,593) Prepaid pension cost...... 46,806 234 396,661 Accrued retirement benefits ...... ¥ (194,494) ¥ (267,695) $ (1,648,254)
The substitutional portion of the benefits under the WPFP has been included in the amounts shown in the above table. Certain domestic subsidiaries received the approval from the Minister of Health, Labor and Welfare in the years ended March 31, 2006 and 2005 with respect to their application for an exemption from the obligation for benefits related to future employee services and for the return of the past benefit obligation and related pension plan assets under the substitutional portion of the WPFP. The components of retirement benefit expenses for the years ended March 31, 2007, 2006 and 2005 are outlined as follows: Thousands of Millions of yen U.S. dollars 2006 2005 2004 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2007 Service cost...... ¥51,696 ¥41,022 ¥47,802 $438,102 Interest cost ...... 41,209 36,809 33,288 349,229 Expected return on plan assets...... (39,625) (29,581) (17,999) (335,805) Amortization of net retirement benefit obligation at transition...... 11,147 11,265 12,009 94,466 Amortization of actuarial loss...... 9,031 12,542 12,298 76,534 Amortization of prior service cost...... (6,925) (5,967) (5,431) (58,686) Other...... 3,732 2,476 179 31,626 Retirement benefit expenses ...... 70,265 68,566 82,146 595,466 Gain on return of the substitutional portion of welfare pension fund plans...... — (772) (1,107) — Net (gain) loss on implementation of defined contribution plans...... (18,782) 3,570 — (159,169) Total...... ¥51,483 ¥71,364 ¥81,039 $436,297
The assumptions used in accounting for the above plans were as follows: 2006 2005 For the years ended Mar. 31, 2007 Mar. 31, 2006 Discount rates Domestic companies...... 2.1% - 2.3% 2.1% - 2.3% Foreign companies...... 2.8% - 6.2% 2.5% - 6.0% Expected rates of return on plan assets Domestic companies...... Mainly 3.0% Mainly 3.0% Foreign companies...... 2.8% - 9.0% 3.0% - 9.0% Amortization period of prior service cost ...... Mainly 9-15 Mainly 9-15 years years Recognition period of actuarial loss ...... Mainly 9-18 Mainly 9-18 years years
60 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
10. NET ASSETS (SHAREHOLDERS’ EQUITY) The new Company Law of Japan (the “Law”), which superseded most of the provisions of the Commercial Code of Japan, went into effect on May 1, 2006. The Law provides that an amount equal to 10% of the amount to be distributed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve. respectively, until the sum of the capital reserve and the legal reserve equals 25% of the common stock account. Such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if certain conditions are met, but neither the capital reserve nor the legal reserve is available for distributions.
(1) Information regarding changes in net assets for the year ended March 31, 2007 is as follows: a. Shares issued and outstanding / Treasury stock Thousands of shares Number of shares Number of shares Types of share at March 31, 2006 Increase Decrease at March 31, 2007 Shares issued: Common stock...... 4,520,715 — — 4,520,715 Treasury stock: Common stock (Notes 1 and 2) ...... 422,763 16,193 29,659 409,297
(Thousands of shares) Notes: 1. Details of the increase are as follows: Increase in stocks held by affiliates accounted for by the equity method 8,337 Increase due to purchase of the stocks 7,810 Increase due to purchase of the stocks of less than standard unit 46 2. Details of the decrease are as follows: Decrease due to exercising share subscription rights 29,657 Decrease in stocks held by affiliates accounted for by the equity method 2 b. Share subscription rights Number of shares to be issued (in thousands)
Balance at Balance at the end of Number of Number of March 31, the current Type of shares at shares at 2007 fiscal year shares to be March 31, March 31, (Millions of (Thousands of Company Description issued 2006 Increase Decrease 2007 yen) U.S. dollars) Euro-yen bonds with warrants Common stock 15,937 — 15,937 — — — due 2007 (Note 1) Euro-yen bonds Parent companywith warrants Common stock 44,703 — 11,625 33,078 ¥1,674 $14,187 due 2008 (Note 2) Share subscrip- tion rights as — 1,037 8,788 stock options Total — ¥2,711 $22,975
Notes: 1. The decrease of Euro-yen bonds with warrants due 2007 reflects the exercise of the warrants. 2. The decrease of Euro-yen bonds with warrants due 2008 reflects the exercise of part of the warrants.
Nissan Annual Report 2006-2007 61 » FINANCIAL SECTION
c. Dividends 1) Dividends paid Total Dividends Total dividends dividends Dividends Type of (Millions of per share Effective (Thousands of per share Resolution shares yen) (Yen) Cut-off date date U.S. dollars) (U.S. dollars) Annual general meeting of the shareholders on June 27, 2006 (Note) Common stock ¥61,329 ¥15 March 31, June 28, $519,737 $0.13 2006 2006 Meeting of the Board of Directors on October 26, 2006 (Note) Common stock ¥69,735 ¥17 September 30, November 28, $590,975 $0.14 2006 2006
Note: Total dividends have been adjusted by the portion of dividends paid to Renault.
2) Dividends, of which the cutoff date was in the year ended March 31, 2007 and the effective date will be in the year ending March 31, 2008
Total Dividends Total dividends Resources dividends Dividends Type of (Millions of of per share Cut-off Effective (Thousands of per share Resolution shares yen) dividends (Yen) date date U.S. dollars) (U.S. dollars)
Annual general meeting of the shareholders on June 20, 2007 (Note) Common stock ¥69,894 Retained ¥17 March 31, June 21, $592,322 $0.14 earnings 2007 2007
Note: Total dividends have been adjusted by the portion of dividends paid to Renault.
(2) Stock Option The Company has implemented adopted a stock option plan under which share subscription rights are granted to directors and employees of the Company and its subsidiaries and affiliates in accordance with Articles 280-20 and 280-21 of the former Commercial Code of Japan before its revision in 2001 and Articles 236, 238 and 239 of the Company Law in 2006.
Stock option plans NESS2003 NESS2004 NESS2005 NESS2006 Individuals covered by the Plan Employees of the Company 548 590 620 456 Directors of the Company's subsidiaries 101 96 88 72 Employees of the Company's subsidiaries 5 4 4 Total 654 690 712 528
Type and number of shares to be issued upon the exercise of the share subscription rights Common stock 12,405,000 12,770,000 13,150,000 13,075,000 Granted date May 7, 2003 April 16, 2004 April 25, 2005 May 8, 2006
Exercise period From May 8, 2005 From April 17, 2006 From April 26, 2007 From May 9, 2008 to May 8, 2010 to June 19, 2013 to June 23, 2014 to June 20, 2015 Conditions for the exercise of share subscription rights are as follows: 1) Individuals to whom the share subscription rights are granted (the “Holders”) must continue their service with the Company or its subsidiaries and affiliates in the state of being employed or entrusted until the share subscription rights become exercisable. 2) The Company's operating results must meet certain predetermined targets. 3) The Holders shall achieve their own predetermined performance targets.
62 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
Number and activity of stock options NESS2003 NESS2004 NESS2005 NESS2006 Share subscription rights which are not yet vested. Outstanding as of March 31, 2006 — 10,078,000 13,150,000 — Granted — — — 13,075,000 Forfeited — — 4,728,000 75,000 Vested — 10,078,000 — — Outstanding as of March 31, 2007 — — 8,422,000 13,000,000 Share subscription rights which have already been vested Outstanding as of March 31, 2006 8,655,500 — — — Vested — 10,078,000 — — Exercised 1,434,100 690,400 — — Forfeited 20,000 109,500 — — Outstanding as of March 31, 2007 7,201,400 9,278,100 — — Exercise price (yen) 932 1,202 1,119 1,526 Weighted average exercise price (yen) 1,386 1,403 — — Weighted average fair value per stock at the granted date (yen) — — — 222.3
Stock option expense included in selling, general and administrative expenses for the year ended March 31, 2007 amounted to ¥1,037 million ($8,788 thousand). The fair value of options granted is estimated using the binominal model with the following weighted average assumptions. NESS2006 Expected volatility 21.00% Expected holding period 5.5 years Expected dividend 40 yen Risk-free rate 1.50%
11. RESEARCH AND DEVELOPMENT COSTS Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended March 31, 2007, 2006 and 2005 amounted to ¥464,839 million ($3,939,314 thousand), ¥447,582 million and ¥398,148 million, respectively.
12. OTHER INCOME (EXPENSES) The components of “Other, net” in “Other income (expenses)” for each of the three years in the period ended March 31, 2007 were as follows: Thousands of Millions of yen U.S. dollars 2006 2005 2004 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2007 Dividend income...... ¥ 1,233 ¥ 3,721 ¥ 1,340 $ 10,449 Gain on sales of fixed assets...... 28,498 16,742 24,038 241,508 Loss on disposal of fixed assets...... (25,402) (22,213) (20,115) (215,271) Net gain on sales of investment securities...... 9,480 40,223 7,232 80,339 Foreign exchange gain (loss)...... 5,796 (34,836) 801 49,119 Amortization of net retirement benefit obligation at transition...... (10,928) (11,145) (11,795) (92,610) Gain on return of the substitutional portion of welfare pension fund plans...... — 772 1,107 — Loss on restructuring of consolidated subsidiaries’ operations...... (3,824) (9,404) (8,752) (32,407) Settlement loss on withdrawal from multi-employer retirement benefit plan...... — — (6,337) — Impairment loss on fixed assets...... (22,673) (26,827) — (192,144) Net gain (loss) on implementation of defined contribution plans...... 18,782 (3,570) — 159,169 Expenses for share appreciation rights ...... — (18,332) — — Loss on relocation of the headquarters of a subsidiary in North America...... (10,827) ——(91,754) Special severance benefits ...... (31,933) ——(270,619) Other...... (51,545) (26,693) (80,514) (436,821) ...... ¥(93,343) ¥(91,562) ¥(92,995) $(791,042)
Nissan Annual Report 2006-2007 63 » FINANCIAL SECTION
13. INCOME TAXES Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax, inhabitants’ taxes and enterprise tax, which, in the aggregate, resulted in a statutory rate of approximately 41% for 2006, 2005 and 2004. Income taxes of the foreign consolidated subsidiaries are based generally on the tax rates applicable in their countries of incorporation. The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2007, 2006 and 2005 differ from the statutory tax rate for the following reasons:
2006 2005 2004 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Statutory tax rate...... 40.6% 40.6% 40.6% Effect of: Decrease in valuation allowance ...... (0.0) (1.0) (1.9) Different tax rates applied to foreign subsidiaries...... (5.4) (3.1) (2.7) Tax credits...... (2.8) (2.7) (1.5) Equity in earnings of unconsolidated subsidiaries and affiliates...... (1.2) (1.9) (1.9) Other...... (0.8) (0.5) (0.1) Effective tax rates...... 30.4% 31.4% 32.5%
The significant components of deferred tax assets and liabilities at March 31, 2007 and 2006 were as follows: Thousands of Millions of yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Deferred tax assets: Net operating loss carryforwards...... ¥ 56,141 ¥ 20,343 $ 475,771 Accrued retirement benefits...... 128,515 157,319 1,089,110 Accrual for warranty costs ...... 70,364 67,461 596,305 Other...... 499,960 454,878 4,236,950 Gross deferred tax assets...... 754,980 700,001 6,398,136 Valuation allowance...... (72,601) (38,880) (615,263) Total deferred tax assets ...... 682,379 661,121 5,782,873 Deferred tax liabilities: Reserves under Special Taxation Measures Law, etc...... (451,404) (440,939) (3,825,458) Difference between cost of investments and their underlying net equity at fair value ...... (78,917) (81,634) (668,788) Unrealized holding gain on securities...... (4,166) (14,828) (35,305) Other...... (182,082) (155,465) (1,543,068) Total deferred tax liabilities ...... (716,569) (692,866) (6,072,619) Net deferred tax liabilities...... ¥ (34,190) ¥ (31,745) $ (289,746)
64 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
14. RETAINED EARNINGS Other changes in retained earnings for each of the two years in the period ended March 31, 2006 were as follows: Millions of yen 2005 2004 For the years ended Mar. 31, 2006 Mar. 31, 2005
Adjustments for revaluation of the accounts of the consolidated subsidiaries based on general price-level accounting (Note 1 (b)) ...... ¥ 9,331 ¥12,942 Loss on disposal of treasury stock ...... (11,507) (4,700) Decrease due to increase in unfunded retirement benefit obligation of foreign subsidiaries...... (884) (369) Adjustments to retained earnings at beginning of the year for inclusion in or exclusion from consolidation or the equity method of accounting for subsidiaries and affiliates, and certain other adjustments...... (2,672) 1,104 Changes in land revaluation of foreign subsidiaries...... 1,646 2,182 Decrease due to an affiliate's transition to International Financial Reporting Standards...... (6,004) — ...... ¥(10,090) ¥11,159
15. SUPPLEMENTARY CASH FLOW INFORMATION The following is a summary of the assets and liabilities of Calsonic Kansei Corporation and its 11 subsidiaries, which were newly consolidated as a result of the acquisition of their shares through the private placement for the year ended March 31, 2005: Millions of yen 2004 For the year ended Mar. 31, 2005 Current assets...... ¥ 69,926 Fixed assets...... 126,242 Total assets...... ¥196,168 Current liabilities ...... ¥ (21,146) Long-term liabilities...... (55,714) Total liabilities...... ¥ (76,860)
The following is a summary of the assets and liabilities of Dongfeng Motor Co., Ltd., which was newly consolidated as a result of the transfer of all its shares to the Company’s consolidated subsidiary, Nissan China Investment Co., Ltd. during the year ended March 31, 2005: Millions of yen 2004 For the year ended Mar. 31, 2005 Current assets...... ¥ 106,744 Fixed assets...... 44,094 Total assets...... ¥ 150,838 Current liabilities ...... ¥(109,922) Long-term liabilities...... (22,218) Total liabilities...... ¥(132,140)
Nissan Annual Report 2006-2007 65 » FINANCIAL SECTION
16. LEASE TRANSACTIONS a) Lessees’ accounting Future minimum lease payments subsequent to March 31, 2007 for noncancelable operating leases are summarized as follows: Thousands of Year ending Mar. 31, Millions of yen U.S. dollars 2008...... ¥ 7,098 $ 60,153 2009 and thereafter...... 25,470 215,847 Total...... ¥32,568 $276,000
b) Lessors’ accounting Future minimum lease income subsequent to March 31, 2007 for noncancelable operating leases are summarized as follows: Thousands of Year ending Mar. 31, Millions of yen U.S. dollars 2008...... ¥382,028 $3,237,525 2009 and thereafter...... 418,280 3,544,746 Total...... ¥800,308 $6,782,271
17. COMMITMENTS AND CONTINGENCIES At March 31, 2007, the Company and its consolidated subsidiaries had the following contingent liabilities: Thousands of Millions of yen U.S. dollars As endorser of notes receivable discounted with banks...... ¥ 5,229 $ 44,314 As guarantor of employees’ housing loans from banks and others ...... 211,585 1,793,093 ...... ¥216,814 $1,837,407
In addition to the above, at March 31, 2007, the Company was committed to provide guarantees of indebtedness of certain unconsolidated subsidiaries and affiliates in the aggregate amount of ¥1,064 million ($9,017 thousand) at the request of the lending banks. The outstanding balance of installment receivables sold with recourse amounted to ¥6,076 million ($51,492 thousand) at March 31, 2007. Certain consolidated subsidiaries have entered into overdraft and loan commitment agreements amounting to ¥229,767 million ($1,947,178 thousand) with their customers and others. The loans receivable outstanding and the unused balances under these credit facilities at March 31, 2007 amounted to ¥63,039 million ($534,229 thousand) and ¥166,728 million ($1,412,949 thousand), respectively. Since many of these credit facilities expire without being utilized and the related borrowings are sometimes subject to a review of the borrowers' creditworthiness, any unused amount may not necessarily be fully utilized.
66 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
18. AMOUNTS PER SHARE Yen U.S. dollars 2006 2005 2004 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2007 Net income: Basic ...... ¥112.33 ¥126.94 ¥125.16 $0.952 Diluted ...... 111.71 125.96 124.01 0.947 Cash dividends applicable to the year...... ¥ 34.00 ¥ 29.00 ¥ 24.00 $0.288 Yen U.S. dollars 2006 2005 2006 As of Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2007 Net assets ...... ¥862.29 ¥753.40 $7.308
Basic net income per share is computed based on the net income available for distribution to shareholders of common stock and the weighted average number of shares of common stock outstanding during the year, and diluted net income per share is computed based on the net income available for distribution to the shareholders and the weighted average number of shares of common stock outstanding during each year after giving effect to the dilutive potential of shares of common stock to be issued upon the exercise of warrants and stock subscription rights. Net assets per share are computed based on the net assets excluding share subscription rights and minority interests (the amount of shareholders' equity in 2005) and the number of common stock outstanding at the year end. Cash dividends per share represent the cash dividends proposed by the Board of Directors as applicable to the respective years together with any interim cash dividends paid.
19. SECURITIES a) Information regarding marketable securities classified as held-to-maturity debt securities and other securities at March 31, 2007 and 2006 is as follows:
Marketable held-to-maturity debt securities Millions of yen Thousands of U.S. dollars Carrying Estimated Unrealized Carrying Estimated Unrealized Fiscal year 2006 (As of Mar. 31, 2007) value fair value gain (loss) value fair value gain (loss) Securities whose carrying value exceeds their fair value: Debt securities...... ¥294 ¥294 ¥ — $2,492 $2,492 $ — Corporate bonds...... 59 59 — 500 500 — Total...... ¥353 ¥353 ¥ — $2,992 $2,992 $ —
Millions of yen Carrying Estimated Unrealized Fiscal year 2005 (As of Mar. 31, 2006) value fair value gain (loss) Securities whose carrying value exceeds their fair value: Corporate bonds...... ¥59 ¥59 ¥ — Total...... ¥59 ¥59 ¥ —
Nissan Annual Report 2006-2007 67 » FINANCIAL SECTION
Marketable other securities
Millions of yen Thousands of U.S. dollars Acquisition Carrying Unrealized Acquisition Carrying Unrealized Fiscal year 2006 (As of Mar. 31, 2007) cost value gain (loss) cost value gain (loss) Securities whose carrying value exceeds their acquisition cost: Stock ...... ¥3,508 ¥14,613 ¥11,105 $29,729 $123,839 $94,110 Others ...... 2,704 2,751 47 22,915 23,314 399 Subtotal...... ¥6,212 ¥17,364 ¥11,152 $52,644 $147,153 $94,509 Securities whose acquisition cost exceeds their carrying value: Stock...... ¥ 926 ¥ 708 ¥ (218) $ 7,847 $ 6,000 $ (1,847) Debt securities...... 20 20 — 169 169 — Others ...... 1,869 1,868 (1) 15,840 15,831 (9) Subtotal...... ¥2,815 ¥ 2,596 ¥ (219) $23,856 $ 22,000 $ (1,856) Total...... ¥9,027 ¥19,960 ¥10,933 $76,500 $169,153 $92,653
Millions of yen Acquisition Carrying Unrealized Fiscal year 2005 (As of Mar. 31, 2006) cost value gain (loss) Securities whose carrying value exceeds their acquisition cost: Stock...... ¥4,646 ¥29,549 ¥24,903 Debt securities...... 19 20 1 Subtotal...... ¥4,665 ¥29,569 ¥24,904 Securities whose acquisition cost exceeds their carrying value: Stock...... ¥ 766 ¥ 539 ¥ (227) Subtotal...... ¥ 766 ¥ 539 ¥ (227) Total...... ¥5,431 ¥30,108 ¥24,677
b) Sales of securities classified as other securities and the aggregate gain and loss are summarized as follows:
Thousands of Millions of yen U.S. dollars 2006 2005 2004 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2007 Sales proceeds...... ¥25,700 ¥6,156 ¥2,032 $217,797 Aggregate gain...... 11,996 305 1,225 101,661 Aggregate loss ...... — (37) (13) —
c) The redemption schedule for securities with maturity dates classified as other securities and held-to-maturity debt securities at March 31, 2007 is summarized as follows: Millions of yen Due in Due after one Due after five one year or year through years through Due after Fiscal year 2006 (As of Mar. 31, 2007) less five years ten years ten years Debt securities...... ¥314 ¥ — ¥ — ¥ — Corporate bonds ...... —— 59— Total...... ¥314 ¥ — ¥59 ¥ —
68 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
Thousands of U.S. dollars Due in Due after one Due after five one year or year through years through Due after Fiscal year 2006 (As of Mar. 31, 2007) less five years ten years ten years Debt securities...... $2,661 $ — $ — $ — Corporate bonds ...... — — 500 — Total...... $2,661 $ — $500 $ —
20. DERIVATIVE TRANSACTIONS Hedging Policies (3) Legal risk The Company and its consolidated subsidiaries (collectively, the The Group is exposed to the risk of entering into a financial “Group”) utilize derivative transactions for the purpose of hedging agreement which may contain inappropriate terms and conditions as their exposure to fluctuation in foreign exchange rates, interest rates well as to the risk that an existing contract may subsequently be and market prices. However, based on an internal management rule affected by revisions to the relevant laws and regulations. on financial market risk (the “Rule”) approved by the Company’s The Company’s Legal Department and Finance Department make Board of Directors, they do not enter into transactions involving every effort to minimize legal risk by reviewing any new agreements derivatives for speculative purposes. The Rule prescribes that (i) the of significance and by reviewing the related documents in a Group’s financial market risk is to be controlled by the Company in a centralized manner. centralized manner, and that (ii) no individual subsidiary can initiate a hedge position without the prior approval of and regular reporting to Risk Management the Company. All strategies to manage financial market risk and risk hedge operations of the Group are carried out pursuant to the Rule which Risk to be hedged by derivative transactions stipulates the Group’s basic policies for derivative transactions, (1) Market risk management policies, management items, procedures, criteria for the The financial market risk to which the Group is generally exposed in selection of counterparties, and the reporting system, and so forth. its operations and the relevant derivative transactions primarily used The Rule prescribes that (i) the Group’s financial market risk is to be for hedging are summarized as follows: controlled by the Company in a centralized manner, and that (ii) no • Foreign exchange risk associated with assets and liabilities individual subsidiary is permitted to initiate a hedging operation denominated in foreign currencies: forward foreign exchange without the prior approval of and regular reporting to the Company. contracts, foreign currency options, and currency swaps; The basic hedge policy is subject to the approval of the Monthly • Interest rate risk associated with sourcing funds and investing: Hedge Policy Meeting attended by the corporate officer in charge of interest-rate swaps; Treasury Department. Execution and management of all deals are to • Risk of fluctuation in stock prices: options on stocks; be conducted pursuant to the Rule. • Risk of fluctuation in commodity prices (mainly for precious metals): Derivative transactions are conducted by a special section of the commodity futures contracts Treasury Department and monitoring of contracts for such transactions and confirming the balance of all open positions are the (2) Credit risk responsibility of back office and risk management section. The Group is exposed to the risk that a counterparty to its financial Commodity futures contracts are to be handled also by Treasury transactions could default and jeopardize future profits. We believe Department under guidelines which are to be drawn up by the MRMC that this risk is insignificant as the Group enters into derivative (Materials Risk Management Committee). transactions only with financial institutions which have a sound credit The MRMC is chaired by the corporate officer in charge of the profile. The Group enters into these transactions also with Renault Purchasing Department and the corporate officer in charge of Finance S.A. (“RF”), a specialized financial subsidiary of the Renault Treasury Department and it will meet approximately once every six Group which, we believe, is not subject to any such material risk. months. This is because RF enters into derivative transactions to cover The status of derivative transactions is reported on a daily basis to such derivative transactions with us only with financial institutions of the chief officer in charge of Treasury Department and on an annual the highest caliber carefully selected by RF based on its own rating basis to the Board of Directors. system which takes into account each counterparty's long-term credit Credit risk is monitored quantitatively with reference to Renault’s rating and shareholders' equity. rating system based principally on the counterparties’ long-term credit ratings and on their shareholders’ equity. The Finance Department sets a maximum upper limit on positions with each of the counterparties for the Group and monitors the balances of open positions every day.
Nissan Annual Report 2006-2007 69 » FINANCIAL SECTION
Summarized below are the notional amounts and the estimated fair value of the derivative instruments outstanding at March 31, 2007 and 2006:
1) Currency-related transactions Millions of yen Thousands of U.S. dollars Notional Unrealized Notional Unrealized Fiscal year 2006 (As of Mar. 31, 2007) amount Fair value gain (loss) amount Fair value gain (loss) Forward foreign exchange contracts Sell: USD ...... ¥12,849 ¥12,928 ¥ (79) $108,890 $109,559 $ (669) EUR...... 1,064 1,080 (16) 9,017 9,153 (136) ZAR...... 695 694 1 5,890 5,881 9 GBP ...... 22 22 0 186 186 0 Others ...... 12 12 0 102 102 0 Buy: EUR...... 757 763 6 6,415 6,466 51 USD ...... 3,483 3,477 (6) 29,517 29,466 (51) Others ...... 10 10 0 8585 0 Currency swaps: EUR...... ¥59,657 ¥ (269) ¥(269) $505,568 $ (2,280) $(2,280) USD ...... 20,816 424 424 176,407 3,593 3,593 AUD...... 1,291 (29) (29) 10,941 (246) (246) CAD ...... 4,353 (42) (42) 36,890 (356) (356) THB...... 25,513 (81) (81) 216,212 (686) (686) Total ...... — — ¥ (91) — — $ (771)
Millions of yen Notional Unrealized Fiscal year 2005 (As of Mar. 31, 2006) amount Fair value gain (loss) Forward foreign exchange contracts Sell: USD ...... ¥ 8,326 ¥ 8,523 ¥ (197) EUR...... 1,117 1,134 (17) ZAR...... 668 717 (49) GBP ...... 9 9 — Others ...... 33 32 1 Buy: EUR...... 876 828 (48) USD ...... 3,078 3,082 4 Others ...... 174 168 (6) Currency swaps: EUR...... ¥105,906 ¥ (253) ¥ (253) GBP ...... 16,771 (16) (16) USD ...... 37,049 422 422 AUD...... 39,199 (605) (605) HKD...... 5,222 100 100 CAD ...... 4,106 (1,120) (1,120) ZAR...... 2,450 (27) (27) Total ...... — — ¥(1,811)
Note: The notional amounts of the forward foreign exchange contracts and currency swaps presented above exclude those entered into to hedge receivables and payables denominated in foreign currencies which have been translated and are reflected at their corresponding contracted rates in the accompanying consolidated balance sheets.
70 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
2) Interest-related transactions
Millions of yen Thousands of U.S. dollars Notional Unrealized Notional Unrealized Fiscal year 2006 (As of Mar. 31, 2007) amount Fair value gain (loss) amount Fair value gain (loss) Interest rate swaps: Receive/floating and pay/fixed...... ¥203,495 ¥ 108 ¥ 108 $1,724,534 $ 915 $ 915 Receive/fixed and pay/floating...... 251,648 280 280 2,132,610 2,373 2,373 Options: Caps sold...... ¥460,851 $3,905,517 (Premium)...... (—) (1,558) (1,558) (—) (13,203) (13,203) Caps purchased...... 460,851 3,905,517 (Premium)...... (—) 1,558 1,558 (—) 13,203 13,203 Total...... — — ¥ 388 — — $ 3,288
Millions of yen Notional Unrealized Fiscal year 2005 (As of Mar. 31, 2006) amount Fair value gain (loss) Interest rate swaps: Receive/floating and pay/fixed...... ¥127,717 ¥ 640 ¥ 640 Receive/fixed and pay/floating...... 239,000 757 757 Options: Caps sold...... ¥515,208 (Premium)...... (—) (5,823) (5,823) Caps purchased...... 515,208 (Premium)...... (—) 5,823 5,823 Total...... — — ¥ 1,397
Note: The notional amounts of the interest rate swaps and options presented above exclude those for which the deferral hedge accounting has been applied.
Nissan Annual Report 2006-2007 71 » FINANCIAL SECTION
21. SEGMENT INFORMATION The Company and its consolidated subsidiaries are primarily engaged in the manufacture and sales of products in the automobile segment and in providing various financial services to users of the Company’s products in the sales financing segment. These products, which are sold in Japan and overseas, principally in North America and Europe, include passenger cars, buses and trucks as well as the related components. Financial services include primarily leases and credits principally in Japan and North America.
Business segments
The business segment information for the Company and its consolidated subsidiaries for the years ended March 31, 2007, 2006 and 2005 is as follows: Fiscal year 2006 (For the year ended Mar. 31, 2007) Sales Automobile Financing Total Eliminations Consolidated Millions of yen I. Sales and operating income Sales to third parties...... ¥9,790,484 ¥ 678,099 ¥10,468,583 ¥ — ¥10,468,583 Inter-segment sales and transfers...... 28,767 16,613 45,380 (45,380) — Total sales...... 9,819,251 694,712 10,513,963 (45,380) 10,468,583 Operating expenses...... 9,171,272 618,959 9,790,231 (98,587) 9,691,644 Operating income...... ¥ 647,979 ¥ 75,753 ¥ 723,732 ¥ 53,207 ¥ 776,939 II. Assets, depreciation, impairment loss and capital expenditures Total assets ...... ¥7,910,116 ¥5,910,380 ¥13,820,496 ¥(1,418,288) ¥12,402,208 Depreciation and amortization...... ¥ 447,924 ¥ 323,299 ¥ 771,223 ¥ — ¥ 771,223 Impairment loss on fixed assets...... ¥ 22,673 ¥ — ¥ 22,673 ¥ — ¥ 22,673 Capital expenditures...... ¥ 578,363 ¥ 925,841 ¥ 1,504,204 ¥ — ¥ 1,504,204
Fiscal year 2006 (For the year ended Mar. 31, 2007) Sales Automobile Financing Total Eliminations Consolidated Thousands of U.S. dollars I. Sales and operating income Sales to third parties...... $82,970,203 $ 5,746,602 $ 88,716,805 $ — $ 88,716,805 Inter-segment sales and transfers...... 243,788 140,788 384,576 (384,576) — Total sales...... 83,213,991 5,887,390 89,101,381 (384,576) 88,716,805 Operating expenses...... 77,722,644 5,245,415 82,968,059 (835,483) 82,132,576 Operating income...... $ 5,491,347 $ 641,975 $ 6,133,322 $ 450,907 $ 6,584,229 II. Assets, depreciation, impairment loss and capital expenditures Total assets ...... $67,034,881 $50,087,966 $117,122,847 $(12,019,389) $105,103,458 Depreciation and amortization...... $ 3,795,966 $ 2,739,822 $ 6,535,788 $ — $ 6,535,788 Impairment loss on fixed assets...... $ 192,144 $ — $ 192,144 $ — $ 192,144 Capital expenditures...... $ 4,901,382 $ 7,846,110 $ 12,747,492 $ — $ 12,747,492
72 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
Fiscal year 2005 (For the year ended Mar. 31, 2006) Sales Automobile Financing Total Eliminations Consolidated Millions of yen I. Sales and operating income Sales to third parties...... ¥8,895,143 ¥ 533,149 ¥ 9,428,292 ¥ — ¥ 9,428,292 Inter-segment sales and transfers...... 28,563 14,794 43,357 (43,357) — Total sales...... 8,923,706 547,943 9,471,649 (43,357) 9,428,292 Operating expenses...... 8,160,292 478,218 8,638,510 (82,059) 8,556,451 Operating income...... ¥ 763,414 ¥ 69,725 ¥ 833,139 ¥ 38,702 ¥ 871,841 II. Assets, depreciation, impairment loss and capital expenditures Total assets ...... ¥7,152,144 ¥5,710,239 ¥12,862,383 ¥(1,380,957) ¥11,481,426 Depreciation and amortization...... ¥ 400,787 ¥ 254,615 ¥ 655,402 ¥ — ¥ 655,402 Impairment loss on fixed assets...... ¥ 26,794 ¥ 33 ¥ 26,827 ¥ — ¥ 26,827 Capital expenditures...... ¥ 503,916 ¥ 920,398 ¥ 1,424,314 ¥ — ¥ 1,424,314
Fiscal year 2004 (For the year ended Mar. 31, 2005) Sales Automobile Financing Total Eliminations Consolidated Millions of yen I. Sales and operating income Sales to third parties...... ¥8,177,841 ¥398,436 ¥8,576,277 ¥ — ¥8,576,277 Inter-segment sales and transfers...... 23,742 13,509 37,251 (37,251) — Total sales...... 8,201,583 411,945 8,613,528 (37,251) 8,576,277 Operating expenses...... 7,429,760 338,388 7,768,148 (53,031) 7,715,117 Operating income...... ¥ 771,823 ¥ 73,557 ¥ 845,380 ¥ 15,780 ¥ 861,160 II. Assets, depreciation and capital expenditures Total assets ...... ¥6,646,594 ¥4,596,322 ¥11,242,916 ¥(1,394,393) ¥9,848,523 Depreciation and amortization...... ¥ 349,163 ¥ 176,763 ¥ 525,926 ¥ — ¥ 525,926 Capital expenditures...... ¥ 469,283 ¥ 582,468 ¥ 1,051,751 ¥ — ¥1,051,751 a) As described in Note 2 (b), effective April 1, 2005, the Company and its domestic consolidated subsidiaries adopted a new accounting standard for the impairment of fixed assets. The effect of this change was to decrease total assets by ¥26,794 million and ¥33 million in the “Automobile” segment and “Sales Financing” segment, respectively, as of March 31, 2006 as compared with the corresponding amounts which would have been recorded if the previous method had been followed. b) As described in Note 2 (c), effective April 1, 2006, the Company adopted a new accounting standard for share-based payment and related implementation guidance. The effect of this change was to decrease operating income of automobile segment by ¥1,037 million ($8,788 thousand) for the year ended March 31, 2007. c) As described in Note 2 (e), effective the year ended March 31, 2007, 22 consolidated subsidiaries have been consolidated by using their financial statements as of the parent's fiscal year end prepared solely for consolidated purposes instead of those as of their respective fiscal year end. In addition, during fiscal year 2006, 33 consolidated subsidiaries have changed their fiscal year end to March 31. The effect of this change was to increase net sales of the automobile and sales financing segments and increase the elimination of inter-group net sales by ¥759,391 million ($6,435,517 thousand), ¥9,586 million ($81,237 thousand) and ¥1,371million ($11,618 thousand), respectively, for the year ended March 31, 2007. In addition, due to this change, operating income of the automobile, sales financing segments and the elimination of inter-group increased by ¥18,785 million ($159,195 thousand), ¥1,796 million ($15,220 thousand) and ¥862 million ($7,305 thousand), respectively, for the year ended March 31, 2007.
Nissan Annual Report 2006-2007 73 » FINANCIAL SECTION
The following tables set forth the summarized financial statements by business segment for the years ended Mar 31, 2007, 2006 and 2005. Amounts for the sales financing segment represent the aggregate of the figures for the sales financing subsidiaries and operations in Japan, the United States, Canada, Mexico and Thailand. Amounts for the automobile and Eliminations segment represent the differences between the consolidated totals and those for the sales financing segment.
1) Summarized consolidated balance sheets by business segment
Millions of yen Thousands of U.S. dollars Automobile and Sales Consolidated Automobile and Sales Consolidated Fiscal year 2006 (As of Mar. 31, 2007) Eliminations Financing total Eliminations Financing total Cash and cash equivalents...... ¥ 459,964 ¥ 9,424 ¥ 469,388 $ 3,898,000 $ 79,864 $ 3,977,864 Short-term investments...... 16,610 182 16,792 140,763 1,542 142,305 Receivables, less allowance for doubtful receivables...... 437,415 3,702,844 4,140,259 3,706,907 31,380,034 35,086,941 Inventories...... 986,150 18,521 1,004,671 8,357,203 156,958 8,514,161 Other current assets ...... 594,434 267,342 861,776 5,037,576 2,265,611 7,303,187 Total current assets...... 2,494,573 3,998,313 6,492,886 21,140,449 33,884,009 55,024,458
Property, plant and equipment, net ...... 3,097,369 1,779,819 4,877,188 26,248,890 15,083,212 41,332,102 Investment securities...... 384,337 1,875 386,212 3,257,093 15,890 3,272,983 Other assets...... 515,549 130,373 645,922 4,369,060 1,104,855 5,473,915 Total assets ...... ¥6,491,828 ¥5,910,380 ¥12,402,208 $55,015,492 $50,087,966 $105,103,458
Short-term borrowings and current portion of long-term debt...... ¥ (245,284) ¥3,393,116 ¥ 3,147,832 $(2,078,678) $28,755,220 $26,676,542 Notes and accounts payable...... 1,637,666 54,857 1,692,523 13,878,525 464,890 14,343,415 Accrued income taxes...... 51,588 20,277 71,865 437,186 171,839 609,025 Other current liabilities...... 575,215 87,884 663,099 4,874,704 744,780 5,619,484 Total current liabilities...... 2,019,185 3,556,134 5,575,319 17,111,737 30,136,729 47,248,466
Long-term debt ...... 448,692 1,507,969 1,956,661 3,802,475 12,779,398 16,581,873 Other long-term liabilities...... 612,435 380,799 993,234 5,190,128 3,227,110 8,417,238 Total long-term liabilities...... 1,061,127 1,888,768 2,949,895 8,992,603 16,006,508 24,999,111 Total liabilities...... 3,080,312 5,444,902 8,525,214 26,104,340 46,143,237 72,247,577
Common stock...... 513,167 92,647 605,814 4,348,873 785,144 5,134,017 Capital surplus...... 773,623 30,847 804,470 6,556,127 261,415 6,817,542 Retained earnings...... 2,092,036 310,690 2,402,726 17,729,119 2,632,966 20,362,085 Treasury stock...... (226,394) — (226,394) (1,918,593) — (1,918,593) Total shareholders' equity...... 3,152,432 434,184 3,586,616 26,715,526 3,679,525 30,395,051
Valuation, translation adjustment and others...... (69,979) 28,600 (41,379) (593,043) 242,373 (350,670) Share Subscription Rights...... 2,711 — 2,711 22,975 — 22,975 Minority interests...... 326,352 2,694 329,046 2,765,694 22,831 2,788,525 Total net assets...... 3,411,516 465,478 3,876,994 28,911,152 3,944,729 32,855,881 Total liabilities and net assets ...... ¥6,491,828 ¥5,910,380 ¥12,402,208 $55,015,492 $50,087,966 $105,103,458
74 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
Millions of yen Automobile and Sales Consolidated Fiscal year 2005 (As of Mar. 31, 2006) Eliminations Financing total Cash and cash equivalents...... ¥ 392,505 ¥ 11,707 ¥ 404,212 Short-term investments...... 22,051 98 22,149 Receivables, less allowance for doubtful receivables ...... 228,405 3,761,343 3,989,748 Inventories...... 847,243 9,256 856,499 Other current assets ...... 481,236 268,410 749,646 Total current assets...... 1,971,440 4,050,814 6,022,254
Property, plant and equipment, net ...... 2,926,753 1,512,055 4,438,808 Investment securities...... 401,520 1,866 403,386 Other assets...... 471,474 145,504 616,978 Total assets ...... ¥5,771,187 ¥5,710,239 ¥11,481,426
Short-term borrowings and current portion of long-term debt...... ¥ (608,176) ¥3,200,465 ¥ 2,592,289 Notes and accounts payable...... 1,482,002 50,318 1,532,320 Accrued income taxes...... 90,428 15,559 105,987 Other current liabilities...... 539,351 81,762 621,113 Total current liabilities...... 1,503,605 3,348,104 4,851,709
Long-term debt ...... 627,788 1,597,815 2,225,603 Other long-term liabilities...... 677,426 352,812 1,030,238 Total long-term liabilities...... 1,305,214 1,950,627 3,255,841 Total liabilities...... 2,808,819 5,298,731 8,107,550
Minority interests...... 284,062 1,831 285,893
Common stock...... 514,489 91,325 605,814 Capital surplus...... 773,623 30,847 804,470 Retained earnings...... 1,855,971 260,854 2,116,825 Unrealized holding gain on securities...... 14,156 184 14,340 Translation adjustments...... (230,780) 26,467 (204,313) Treasury stock...... (249,153) — (249,153) Total shareholders’ equity...... 2,678,306 409,677 3,087,983 Total liabilities and shareholders’ equity ...... ¥5,771,187 ¥5,710,239 ¥11,481,426
Nissan Annual Report 2006-2007 75 » FINANCIAL SECTION
(Interest-bearing debt) Millions of yen Thousands of U.S. dollars Automobile and Sales Consolidated Automobile and Sales Consolidated Fiscal year 2006 (As of Mar. 31, 2007) Eliminations Financing total Eliminations Financing total Short-term borrowings from third parties ...... ¥ 693,500 ¥2,403,911 ¥3,097,411 $ 5,877,119 $20,372,127 $26,249,246 Internal loans to sales financing companies..... (988,603) 988,603 — (8,377,992) 8,377,992 — Short-term borrowings per the balance sheet .... (295,103) 3,392,514 3,097,411 (2,500,873) 28,750,119 26,249,246 Bonds and debentures...... 349,689 380,018 729,707 2,963,466 3,220,492 6,183,958 Long-term borrowings from third parties...... 65,168 1,102,646 1,167,814 552,271 9,344,457 9,896,728 Internal loans to sales financing companies..... (25,305) 25,305 — (214,449) 214,449 — Long-term borrowings per the balance sheet..... 39,863 1,127,951 1,167,814 337,822 9,558,906 9,896,728 Lease obligations...... 108,959 602 109,561 923,381 5,102 928,483 Internal Loans from Sales Financing...... 1,918 (1,918) — 16,255 (16,255) — Total interest-bearing debt ...... 205,326 4,899,167 5,104,493 1,740,051 41,518,364 43,258,415 Cash and cash equivalents...... 459,964 9,424 469,388 3,898,000 79,864 3,977,864 Net interest-bearing debt (net cash and cash equivalents)...... (254,638) 4,889,743 4,635,105 (2,157,949) 41,438,500 39,280,551 Debt for Canton Plant included in the above...... 94,861 — 94,861 803,907 — 803,907 Lease obligation included in the above ...... 108,959 602 109,561 923,381 5,102 928,483 Net interest-bearing debt (net cash and cash equivalents) (excluding that related to Canton Plant and lease obligations) ...... ¥(458,458) ¥4,889,141 ¥4,430,683 $(3,885,237) $41,433,398 $37,548,161
Millions of yen Automobile and Sales Consolidated Fiscal year 2005 (As of Mar. 31, 2006) Eliminations Financing total Short-term borrowings from third parties ...... ¥ 302,471 ¥2,231,295 ¥2,533,766 Internal loans to sales financing companies...... (968,451) 968,451 — Short-term borrowings per the balance sheet ...... (665,980) 3,199,746 2,533,766 Bonds and debentures...... 381,346 326,861 708,207 Long-term borrowings from third parties.... 174,734 1,270,954 1,445,688 Internal loans to sales financing companies...... ——— Long-term borrowings per the balance sheet...... 174,734 1,270,954 1,445,688 Lease obligations...... 129,512 719 130,231 Total interest-bearing debt ...... 19,612 4,798,280 4,817,892 Cash and cash equivalents...... 392,505 11,707 404,212 Net interest-bearing debt (net cash and cash equivalents)...... (372,893) 4,786,573 4,413,680 Debt for Canton Plant included above...... 98,500 — 98,500 Lease obligations included above...... 129,512 719 130,231 Net interest-bearing debt (net cash and cash equivalents) (excluding that related to Canton Plant and lease obligations)...... ¥(600,905) ¥4,785,854 ¥4,184,949
76 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
2) Summarized consolidated statements of income by business segment
Millions of yen Thousands of U.S. dollars Automobile and Sales Consolidated Automobile and Sales Consolidated Fiscal year 2006 (For the year ended Mar. 31, 2007) Eliminations Financing total Eliminations Financing total Net sales...... ¥9,773,871 ¥694,712 ¥10,468,583 $82,829,415 $5,887,390 $88,716,805 Cost of sales...... 7,498,350 528,836 8,027,186 63,545,339 4,481,661 68,027,000 Gross profit...... 2,275,521 165,876 2,441,397 19,284,076 1,405,729 20,689,805 Operating income...... 701,186 75,753 776,939 5,942,254 641,975 6,584,229 Operating income as a percentage of net sales...... 7.2% 10.9% 7.4% 7.2% 10.9% 7.4% Net financial cost...... (5,664) 546 (5,118) (48,000) 4,627 (43,373) Income before income taxes and minority interests...... 621,236 76,196 697,432 5,264,712 645,729 5,910,441 Net income...... ¥ 413,529 ¥ 47,267 ¥ 460,796 $ 3,504,483 $ 400,568 $ 3,905,051 Total net financial cost...... ¥ (5,664) ¥ 546 ¥ (5,118) $ (48,000) $ 4,627 $ (43,373) Interest on lease obligations ...... (3,323) (13) (3,336) (28,161) (110) (28,271) Intersegment eliminations ...... (55,569) — (55,569) (470,924) — (470,924) Net financial cost for segment ...... 53,228 559 53,787 451,085 4,737 455,822
Millions of yen Automobile and Sales Consolidated Fiscal year 2005 (For the year ended Mar. 31, 2006) Eliminations Financing total Net sales...... ¥8,880,349 ¥547,943 ¥9,428,292 Cost of sales...... 6,649,937 391,050 7,040,987 Gross profit...... 2,230,412 156,893 2,387,305 Operating income...... 802,116 69,725 871,841 Operating income as a percentage of net sales...... 9.0% 12.7% 9.2% Net financial cost...... (4,555) (11) (4,566) Income before income taxes and minority interests...... 739,962 69,079 809,041 Net income...... ¥ 476,688 ¥ 41,362 ¥ 518,050 Total net financial cost...... ¥ (4,555) ¥ (11) ¥ (4,566) Interest on lease obligations ...... (3,952) (16) (3,968) Intersegment eliminations ...... (37,507) — (37,507) Net financial cost for segment ...... 36,904 5 36,909
Millions of yen Automobile and Sales Consolidated Fiscal year 2004 (For the year ended Mar. 31, 2005) Eliminations Financing total Net sales...... ¥8,164,332 ¥411,945 ¥8,576,277 Cost of sales...... 6,094,196 257,073 6,351,269 Gross profit...... 2,070,136 154,872 2,225,008 Operating income...... 787,603 73,557 861,160 Operating income as a percentage of net sales...... 9.6% 17.9% 10.0% Net financial cost...... (10,371) (11) (10,382) Income before income taxes and minority interests...... 720,764 72,469 793,233 Net income...... ¥ 472,680 ¥ 39,601 ¥ 512,281 Total net financial cost...... ¥ (10,371) ¥ (11) ¥ (10,382) Interest on lease obligations ...... (4,097) (20) (4,117) Intersegment eliminations ...... (12,524) — (12,524) Net financial cost for segment ...... 6,250 9 6,259
Nissan Annual Report 2006-2007 77 » FINANCIAL SECTION
3) Summarized consolidated statements of cash flows by business segment
Millions of yen Thousands of U.S. dollars Automobile and Sales Consolidated Automobile and Sales Consolidated Fiscal year 2006 (For the year ended Mar. 31, 2007) Eliminations Financing total Eliminations Financing total Operating activities Income before income taxes and minority interests...... ¥621,236 ¥ 76,196 ¥ 697,432 $5,264,712 $ 645,729 $5,910,441 Depreciation and amortization...... 447,924 323,299 771,223 3,795,966 2,739,822 6,535,788 Increase (decrease) in finance receivables.... (22,914) 67,255 44,341 (194,187) 569,958 375,771 Others ...... (528,386) 58,217 (470,169) (4,477,847) 493,364 (3,984,483) Net cash provided by operating activities...... 517,860 524,967 1,042,827 4,388,644 4,448,873 8,837,517
Investing activities Proceeds from sales of investment securities including shares of subsidiaries...... 37,794 — 37,794 320,288 — 320,288 Proceeds from sales of property, plant and equipment...... 72,308 0 72,308 612,780 0 612,780 Purchases of fixed assets...... (537,129) (9,719) (546,848) (4,551,941) (82,364) (4,634,305) Purchases of leased vehicles...... (41,234) (916,122) (957,356) (349,440) (7,763,746) (8,113,186) Proceeds from sales of leased vehicles ...... 7,253 297,659 304,912 61,466 2,522,534 2,584,000 Others ...... (35,804) 10,407 (25,397) (303,425) 88,195 (215,230) Net cash used in investing activities...... (496,812) (617,775) (1,114,587) (4,210,272) (5,235,381) (9,445,653)
Financing activities Increase in short-term borrowings...... 418,824 73,714 492,538 3,549,356 624,695 4,174,051 Decrease or redemption of long-term debt... (215,299) (107,770) (323,069) (1,824,568) (913,305) (2,737,873) Increase in bonds and debentures...... — 123,730 123,730 — 1,048,559 1,048,559 Others ...... (186,460) 173 (186,287) (1,580,169) 1,466 (1,578,703) Net cash provided by financing activities...... 17,065 89,847 106,912 144,619 761,415 906,034
Effect of exchange rate changes on cash and cash equivalents...... 16,775 (135) 16,640 142,161 (1,144) 141,017 Increase (Decrease) in cash and cash equivalents...... 54,888 (3,096) 51,792 465,152 (26,237) 438,915 Cash and cash equivalents at beginning of year...... 392,505 11,707 404,212 3,326,314 99,211 3,425,525 Increase due to inclusion in consolidation...... 12,571 813 13,384 106,534 6,890 113,424 Cash and cash equivalents at end of year...... ¥459,964 ¥ 9,424 ¥ 469,388 $3,898,000 $ 79,864 $3,977,864
78 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
Millions of yen Automobile and Sales Consolidated Fiscal year 2005 (For the year ended Mar. 31, 2006) Eliminations Financing total Operating activities Income before income taxes and minority interests...... ¥739,962 ¥ 69,079 ¥ 809,041 Depreciation and amortization...... 400,787 254,615 655,402 (Increase) decrease in finance receivables ...... 19,341 (331,026) (311,685) Others ...... (468,999) 74,110 (394,889) Net cash provided by operating activities...... 691,091 66,778 757,869
Investing activities Proceeds from sales of investment securities including shares of subsidiaries...... 50,765 — 50,765 Proceeds from sales of property, plant and equipment...... 55,789 1 55,790 Purchases of fixed assets...... (456,550) (14,479) (471,029) Purchases of leased vehicles...... (47,366) (905,919) (953,285) Proceeds from sales of leased vehicles...... 37,523 226,601 264,124 Others ...... (59,951) 831 (59,120) Net cash used in investing activities...... (419,790) (692,965) (1,112,755)
Financing activities Increase in short-term borrowings ...... 16,565 359,483 376,048 (Decrease) increase or redemption of long-term debt...... (228,985) 102,227 (126,758) Increase in bonds and debentures...... 227,386 163,320 390,706 Others ...... (183,960) 1,883 (182,077) Net cash provided by (used in) financing activities...... (168,994) 626,913 457,919
Effect of exchange rate changes on cash and cash equivalents...... 10,016 1,373 11,389 Increase in cash and cash equivalents ...... 112,323 2,099 114,422 Cash and cash equivalents at beginning of year...... 280,176 9,608 289,784 Increase due to inclusion in consolidation...... 6 — 6 Cash and cash equivalents at end of year...... ¥392,505 ¥ 11,707 ¥ 404,212
Nissan Annual Report 2006-2007 79 » FINANCIAL SECTION
Millions of yen Automobile and Sales Consolidated Fiscal year 2004 (For the year ended Mar. 31, 2005) Eliminations Financing total Operating activities Income before income taxes and minority interests...... ¥720,764 ¥ 72,469 ¥793,233 Depreciation and amortization...... 349,163 176,763 525,926 (Increase) decrease in finance receivables ...... 17,131 (811,480) (794,349) Others ...... (207,813) 52,418 (155,395) Net cash provided by (used in) operating activities ...... 879,245 (509,830) 369,415
Investing activities Proceeds from sales of investment securities including shares of subsidiaries...... 10,285 510 10,795 Proceeds from sales of property, plant and equipment...... 71,256 — 71,256 Purchases of fixed assets...... (453,357) (7,789) (461,146) Purchases of leased vehicles...... (15,926) (574,679) (590,605) Proceeds from sales of leased vehicles...... 16,143 157,669 173,812 Others ...... (79,115) 9,968 (69,147) Net cash used in investing activities...... (450,714) (414,321) (865,035)
Financing activities Increase in short-term borrowings ...... 174,500 491,691 666,191 (Decrease) increase or redemption of long-term debt...... (391,244) 296,551 (94,693) Increase in bonds and debentures...... — 140,663 140,663 Others ...... (191,998) 883 (191,115) Net cash provided by (used in) financing activities...... (408,742) 929,788 521,046
Effect of exchange rate changes on cash and cash equivalents...... 4,427 (58) 4,369 Increase in cash and cash equivalents ...... 24,216 5,579 29,795 Cash and cash equivalents at beginning of year...... 190,135 4,029 194,164 Increase due to inclusion in consolidation...... 65,825 — 65,825 Cash and cash equivalents at end of year...... ¥280,176 ¥ 9,608 ¥289,784
80 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
Geographical areas
The geographical segment information for the Company and its consolidated subsidiaries for the years ended March 31, 2007, 2006 and 2005 is summarized as follows: Fiscal year 2006 (For the year ended Mar. 31, 2007) Other foreign Japan North America Europe countries Total Eliminations Consolidated Millions of yen Sales to third parties...... ¥2,478,549 ¥4,550,498 ¥2,038,026 ¥1,401,510 ¥10,468,583 ¥ — ¥10,468,583 Inter-area sales and transfers ...... 2,205,469 138,945 128,388 27,528 2,500,330 (2,500,330) — Total sales...... 4,684,018 4,689,443 2,166,414 1,429,038 12,968,913 (2,500,330) 10,468,583 Operating expenses ...... 4,411,824 4,329,427 2,084,112 1,370,801 12,196,164 (2,504,520) 9,691,644 Operating income...... ¥ 272,194 ¥ 360,016 ¥ 82,302 ¥ 58,237 ¥ 772,749 ¥ 4,190 ¥ 776,939 Total assets ...... ¥6,031,316 ¥6,085,485 ¥1,482,333 ¥1,070,801 ¥14,669,935 ¥(2,267,727)¥12,402,208
Thousands of U.S. dollars Sales to third parties...... $21,004,653 $38,563,542 $17,271,407 $11,877,203 $ 88,716,805 $ — $ 88,716,805 Inter-area sales and transfers ...... 18,690,415 1,177,500 1,088,034 233,288 21,189,237 (21,189,237) — Total sales...... 39,695,068 39,741,042 18,359,441 12,110,491 109,906,042 (21,189,237) 88,716,805 Operating expenses ...... 37,388,339 36,690,059 17,661,966 11,616,958 103,357,322 (21,224,746) 82,132,576 Operating income...... $ 2,306,729 $ 3,050,983 $ 697,475 $ 493,533 $ 6,548,720 $ 35,509 $ 6,584,229 Total assets ...... $51,112,847 $51,571,907 $12,562,144 $ 9,074,585 $124,321,483 $(19,218,025)$105,103,458
Fiscal year 2005 (For the year ended Mar. 31, 2006) Other foreign Japan North America Europe countries Total Eliminations Consolidated Millions of yen Sales to third parties...... ¥2,674,549 ¥4,100,662 ¥1,414,674 ¥1,238,407 ¥ 9,428,292 ¥ — ¥ 9,428,292 Inter-area sales and transfers ...... 2,194,405 138,585 82,632 13,928 2,429,550 (2,429,550) — Total sales...... 4,868,954 4,239,247 1,497,306 1,252,335 11,857,842 (2,429,550) 9,428,292 Operating expenses ...... 4,478,536 3,852,304 1,430,127 1,194,714 10,955,681 (2,399,230) 8,556,451 Operating income...... ¥ 390,418 ¥ 386,943 ¥ 67,179 ¥ 57,621 ¥ 902,161 ¥ (30,320) ¥ 871,841 Total assets ...... ¥5,961,342 ¥5,751,652 ¥ 746,016 ¥ 798,533 ¥13,257,543 ¥(1,776,117)¥11,481,426
Fiscal year 2004 (For the year ended Mar. 31, 2005) Other foreign Japan North America Europe countries Total Eliminations Consolidated Millions of yen Sales to third parties...... ¥2,556,683 ¥3,726,456 ¥1,254,007 ¥1,039,131 ¥ 8,576,277 ¥ — ¥8,576,277 Inter-area sales and transfers ...... 1,981,104 81,794 51,109 7,622 2,121,629 (2,121,629) — Total sales...... 4,537,787 3,808,250 1,305,116 1,046,753 10,697,906 (2,121,629) 8,576,277 Operating expenses ...... 4,196,667 3,392,676 1,249,110 996,529 9,834,982 (2,119,865) 7,715,117 Operating income...... ¥ 341,120 ¥ 415,574 ¥ 56,006 ¥ 50,224 ¥ 862,924 ¥ (1,764) ¥ 861,160 Total assets ...... ¥5,590,397 ¥4,714,272 ¥ 799,778 ¥ 637,065 ¥11,741,512 ¥(1,892,989) ¥9,848,523
Nissan Annual Report 2006-2007 81 » FINANCIAL SECTION
a) As described in Note 2 (b), effective April 1, 2005, the Company and its domestic consolidated subsidiaries adopted a new accounting standard for the impairment of fixed assets. The effect of this change was to decrease total assets in the “Japan”segment by ¥26,827 million as of March 31, 2006 as compared with the corresponding amounts which would have been recorded if the previous method had been followed.
b) As described in Note 2 (c), effective April 1, 2006, the Company adopted a new accounting standard for share-based payment and related implementation guidance. The effect of this change was to decrease operating income of Japan segment by ¥1,037 million ($8,788 thousand) for the year ended March 31, 2007.
c) As described in Note 2 (e), effective the year ended March 31, 2007, 22 consolidated subsidiaries have been consolidated by using their financial statements as of the parent's fiscal year end prepared solely for consolidated purposes instead of those as of their respective fiscal year end. In addition, during fiscal year 2006, 33 consolidated subsidiaries have changed their fiscal year end to March 31. The effect of this change was to increase net sales of the Japan, North America, Europe segment and Other segments and increase the elimination of inter- group net sales by ¥62,479 million ($529,483 thousand), ¥219,878 million ($1,863,373 thousand), ¥454,769 million ($3,853,975 thousand), ¥87,087 million ($738,025 thousand) and ¥56,607 million ($479,720 thousand), respectively, for the year ended March 31, 2007. In addition, because of this change, operating income of the Japan, North America, Europe and Other segments increased by ¥1,586 million ($13,441 thousand), ¥21,403 million ($181,381 thousand), ¥2,744 million ($23,254 thousand) and ¥210 million ($1,780 thousand), respectively, and operating income of inter-group elimination decreased by ¥4,500 million ($38,136 thousand) for the year ended March 31, 2007.
Overseas sales
Overseas sales, which include export sales of the Company and its domestic consolidated subsidiaries and sales (other than exports to Japan) of the foreign consolidated subsidiaries, for the years ended March 31, 2007, 2006 and 2005 are summarized as follows: Fiscal year 2006 (For the year ended Mar. 31, 2007) Other foreign North America Europe countries Total Millions of yen Overseas sales...... ¥4,410,531 ¥2,023,772 ¥1,829,617 ¥ 8,263,920 Consolidated net sales...... 10,468,583
Thousands of U.S. dollars Overseas sales...... $37,377,381 $17,150,610 $15,505,229 $70,033,220 Consolidated net sales...... 88,716,805 Overseas sales as a percentage of consolidated net sales...... 42.1% 19.3% 17.5% 78.9%
Fiscal year 2005 (For the year ended Mar. 31, 2006) Other foreign North America Europe countries Total Millions of yen Overseas sales...... ¥4,014,475 ¥1,414,929 ¥1,655,630 ¥7,085,034 Consolidated net sales...... 9,428,292 Overseas sales as a percentage of consolidated net sales...... 42.6% 15.0% 17.6% 75.2%
Fiscal year 2004 (For the year ended Mar. 31, 2005) Other foreign North America Europe countries Total Millions of yen Overseas sales...... ¥3,662,436 ¥1,269,204 ¥1,401,592 ¥6,333,232 Consolidated net sales...... 8,576,277 Overseas sales as a percentage of consolidated net sales...... 42.7% 14.8% 16.3% 73.8%
a) As described in Note 2 (e), effective the year ended March 31, 2007, 22 consolidated subsidiaries have been consolidated by using their financial statements as of the parent's fiscal year end prepared solely for consolidated purposes instead of those as of their respective fiscal year end, and 33 consolidated subsidiaries have also changed their fiscal year end to March 31. The effect of this change was to increase overseas sales of North America by ¥177,178 million ($1,501,508 thousand), Europe by ¥402,598 million ($3,411,847 thousand) and other foreign countries by ¥138,990 million ($1,177,881thousand).
82 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
22. SUBSEQUENT EVENT The Company issued the following bonds in yen without collateral for working capital on June 19, 2007: Thousands of Millions of yen U.S. dollars 1.76% bonds in yen due 2012...... ¥65,000 $550,847 1.95% bonds in yen due 2014...... 35,000 296,610
Nissan Annual Report 2006-2007 83 » FINANCIAL SECTION
REPORT OF INDEPENDENT AUDITORS
Certified Public Accountants Tel : 03 3503 1100 Hibiya Kokusai Bldg. Fax: 03 3503 1197 2-2-3, Uchisaiwai-cho Chiyoda-ku, Tokyo, Japan 100-0011 C.P.O. Box 1196, Tokyo, Japan 100-8641
The Board of Directors Nissan Motor Co., Ltd.
We have audited the accompanying consolidated balance sheets of Nissan Motor Co., Ltd. and consolidated subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of income and cash flows for each of the three years in the period ended March 31, 2007, changes in net assets for the year ended March 31, 2007 and shareholders’ equity for the years ended March 31, 2006 and 2005, all expressed in yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nissan Motor Co., Ltd. and consolidated subsidiaries at March 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2007 in conformity with accounting principles generally accepted in Japan.
Supplementary Information
(1) As described in Note 2(a) and (b), effective April 1, 2005, the Company and certain domestic consolidated subsidiaries changed their method of accounting for forward exchange contracts and adopted a new accounting standard for the impairment of fixed assets. (2) As described in Note 2(d), effective April 1, 2006, the Company adopted a new accounting standard for presentation of net assets in the balance sheet. (3) As described in Note 2(e), effective the year ended March 31, 2007, 22 consolidated subsidiaries have been consolidated by using their financial statements as of the parent’s fiscal year end prepared solely for consolidated purposes instead of those as of their respective fiscal year end. In addition, 33 consolidated subsidiaries have changed their fiscal year end to March 31.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2007 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3.
June 20, 2007
84 Nissan Annual Report 2006-2007 FINANCIAL SECTION»
NON-CONSOLIDATED FIVE-YEAR SUMMARY
Nissan Motor Co., Ltd. Fiscal years 2006, 2005, 2004, 2003 and 2002
Millions of U.S. dollars (Note 1) Millions of yen (except per (except per share amounts and number of employees) share amounts) 2006 2005 2004 2003 2002 2006 For the years ended Mar. 31, 2007 Mar. 31, 2006 Mar. 31, 2005 Mar. 31, 2004 Mar. 31, 2003 Mar. 31, 2007
Net sales ¥3,608,934 ¥3,895,553 ¥3,718,720 ¥3,480,290 ¥3,419,068 $30,584 Operating income 185,561 254,159 231,764 245,836 316,059 1,573 Net income 79,481 240,593 102,415 80,713 72,869 674 Net income per share (Note 2) 18.01 54.88 23.24 18.15 16.09 0.15 Cash dividends paid (Note 3, 4) 34.00 29.00 24.00 19.00 14.00 0.29 Net assets (Note 5) ¥1,775,413 ————$15,046 Shareholders' equity (Note 5) — ¥1,827,030 ¥1,685,893 ¥1,709,705 ¥1,798,716 — Total assets 3,804,369 3,845,041 3,981,914 4,055,579 3,933,993 32,240 Long-term debt 417,220 508,463 489,151 653,392 902,118 3,536 Depreciation and amortization 133,493 127,543 115,180 102,107 56,760 1,131 Number of employees 32,489 32,180 32,177 31,389 31,128
Notes: 1. Unless indicated otherwise, all dollar figures herein refer to U.S. currency. Yen amounts have been translated into U.S. dollars, for convenience only, at ¥118=$1, the approximate exchange rate on March 31, 2007. 2. Net income per share amounts are based on the weighted average number of shares of common stock outstanding during each year. Figures for net income per share are in exact yen and U.S. dollars. Number of shares outstanding as of March 31, 2007: 4,520,715,112 3. Cash dividends paid represent the amounts proposed by the board of Directors as applicable to the respective years, together with the interim cash dividends paid. 4. Cash dividends applicable to fiscal year 2006 is ¥34 per share. 5. Effective April 1, 2006, the Company adopted a new accounting standard for presentation of net assets in the balance sheet and related implementation guidance. Under the new accounting standard, net assets represent aggregate of previous shareholders' equity and share subscription rights.
Nissan Annual Report 2006-2007 85 » CORPORATE DATA
INFORMATION ON SUBSIDIARIES AND AFFILIATES
Consolidated subsidiaries As of Mar. 31, 2007 The company’s Capital share- Subsidiary Location Principal business (millions) holding*(%)
Japan
Nissan Shatai Co., Ltd. Hiratsuka, Kanagawa Manufacture and sales of automobiles and parts ¥7,905 43.09 Aichi Machine Industry Co., Ltd. Nagoya, Aichi Manufacture and sales of automotive parts ¥8,518 41.47 JATCO Ltd. Fuji, Shizuoka Manufacture and sales of automotive parts ¥29,935 74.96 Nissan Kohki Co., Ltd. Samukawa, Kanagawa Manufacture and sales of automotive parts ¥2,020 97.73 Calsonic Kansei Corporation Tokyo Manufacture and sales of automotive parts ¥41,455 41.47 Nissan Motor Car Carrier Co., Ltd. Tokyo International automobile transport ¥640 60.00 Nissan Trading Co., Ltd. Yokohama, Kanagawa Import and export of automobiles, parts, etc. ¥320 100.00 Nissan Financial Services Co., Ltd. Chiba, Chiba Automobile financing and leasing ¥16,388 100.00 Autech Japan, Inc. Chigasaki, Kanagawa Development, manufacture and sales of ¥480 100.00 limited-edition automobiles Nissan Network Holdings Corporation Tokyo Real estate sales, purchase and leasing ¥1,510 100.00 Nissan Finance Co., Ltd. Tokyo Finance and accounting support ¥2,491 100.00 Aichi Nissan Motor Co., Ltd. Nagoya, Aichi Sales of automobiles and parts ¥90 100.00 Nissan Tokuhan Co., Ltd. Tokyo Sales of automobiles and parts ¥480 100.00 Nissan Prince Tokyo Motor Sales Tokyo Sales of automobiles and parts ¥95 100.00 Co., Ltd. Nissan Chuo Parts Sales Co., Ltd. Yokohama, Kanagawa Sales of automobiles and repair parts ¥545 80.61
US
Nissan North America, Inc. Nashville, Tennessee Management of North American subsidiaries, $1,792 100.00 manufacture and sales of automobiles and parts Nissan Motor Acceptance Corporation Nashville, Tennessee Finance of wholesale and retail automobile sales $500 100.00 in US Nissan Technical Center Farmington Hills, Research and development, testing $16 100.00 North America, Inc. Michigan Nissan Motor Insurance Corporation Honolulu, Hawaii Casualty insurance $10 100.00 Nissan Forklift Co., North America Marengo, Illinois Manufacture and sales of forklifts and parts $34 100.00
Canada
Nissan Canada, Inc. Mississauga, Ontario Sales of automobiles and parts CAN$68 100.00
Mexico
Nissan Mexicana, S.A. de C.V. Mexico D.F. Manufacture and sales of automobiles and parts P17,056 100.00
86 Nissan Annual Report 2006-2007 CORPORATE DATA»
Europe
Nissan Europe S.A.S. Trappes, France Management of European manufacturing and sales €1,626 100.00 Nissan International Finance Amsterdam, Financing for group companies €14 100.00 (Netherlands) B.V. The Netherlands Nissan West Europe S.A.S Trappes, France Sales of automobiles and parts €4 100.00 Nissan International Holding B.V. Amsterdam, Holding company for subsidiaries €2,795 100.00 The Netherlands Nissan Motor (GB) Ltd. Rickmansworth, UK Sales of automobiles and parts £136 100.00 Nissan Holding (UK) Ltd. Sunderland, UK Holding company for English subsidiaries €871 100.00 Nissan Italia S.p.A. Rome, Italy Sales of automobiles and parts €6 100.00 Nissan Motor Manufacturing (UK) Ltd. Sunderland, UK Manufacture and sales of automobiles and parts £250 100.00 Nissan Technical Center Europe Ltd. Cranfield, UK Research and development, testing £16 100.00 Nissan Forklift Europe B.V. Amsterdam, Sales of forklifts and parts €7 100.00 The Netherlands Nissan Motor Iberica, S.A. Barcelona, Spain Manufacture and sales of automobiles and parts €726 99.76 Nissan Iberia, S.A. Barcelona, Spain Sales of automobiles and parts €12 100.00 Nissan Forklift Espana, S.A. Noain, Spain Manufacture and sales of forklifts and parts €9 100.00
Australia
Nissan Motor Co. (Australia) Pty. Ltd. Dandenong, Victoria Sales of automobiles and parts A$290 100.00
New Zealand
Nissan New Zealand Ltd. Auckland Managing of New Zealand subsidiaries; NZ$51 100.00 automobile sales
South Africa
Nissan Motor Company Rosslyn Managing of South African subsidiaries; R40 100.00 South Africa (Pty) Ltd. automobile manufacturing and sales
Middle East
Nissan Middle East F.Z.E. Dubai, UAE Automobile sales Dh2 100.00
China
Nissan Motor (China) Ltd. Hong Kong Automobile sales HK$16 100.00 Dongfeng Motor Co., Ltd. Hubei Manufacture and sales of automobiles and parts RMB16,700 50.00 Nissan China Investment Co., Ltd. Beijing Managing of Chinese subsidiaries; RMB8,401 100.00 automobile sales
Taiwan
Yulon Nissan Motor Co., Ltd. Miao Li Hsien Manufacture and sales of automobiles and parts TWD3,000 40.00
Thailand
Siam Nissan Automobile Co., Ltd. Samuthprakarn Manufacture and sales of automobiles and parts THB1,931 75.00
Other consolidated subsidiaries 144 companies Total consolidated subsidiaries 188 companies
*Percent of voting rights held by Nissan Motor Co., Ltd.
Nissan Annual Report 2006-2007 87 » CORPORATE DATA
Subsidiaries and affiliates accounted for by the equity method As of Mar. 31, 2007 The company’s Capital share- Subsidiary and affiliate Location Principal business (millions) holdings*(%)
Japan
Kinugawa Rubber Industrial Co., Ltd. Chiba, Chiba Manufacture and sales of automotive parts ¥5,655 20.28
France
Renault Billancourt Manufacture and sales of automobiles and parts €1,086 15.42
Other subsidiaries and affiliates accounted for by the equity method 45 companies Total subsidiaries and affiliates accounted for by the equity method 47 companies
*Percent of voting rights held by Nissan Motor Co., Ltd.
88 Nissan Annual Report 2006-2007 CORPORATE DATA»
CORPORATE OFFICERS
Chief Executive Officer Vice Chairman Corporate Vice Presidents Carlos Ghosn Tadao Takahashi Asako Hoshino Global Communications, CSR and IR External and Government Affairs Akira Kaetsu Global Internal Audit Intellectual Asset Management Akira Sato Treasury Toshio Aoki Chief Operating Officer Senior Vice Presidents Yasuaki Hashimoto Toshiyuki Shiga Shiro Nakamura Shoichi Miyatani Japan Operations (MC-J) Kazuhiko Toida Keiichi Murata Human Resources Kimiyasu Nakamura Shuichi Otani Executive Vice President Junichi Endo Simon Sproule Itaru Koeda Hitoshi Kawaguchi Celso Guiotoko MC-Dealer Minoru Shinohara Domestic Network Management Shigeaki Kato Yo Usuba Administration for AFLs (MC-AFL) Haruyoshi Kumura External and Government Affairs Shigeo Shingyoji Intellectual Asset Management Akihiro Otomo Yoshiaki Watanabe Industrial Machinery Andy Palmer Marine Colin Dodge Emmanuel Delay Kazumasa Katoh Executive Vice President Akihiro Ishiwatari Hiroto Saikawa Philippe Klein Thomas Lane American Operations (MC-America & MC-US) Toshiharu Sakai Purchasing Gilles Normand Atsushi Shizuta Executive Vice President Joji Tagawa Mitsuhiko Yamashita Thierry Viadieu Research and Development TCSX (Total Customer Satisfaction Function) Yasuhiro Yamauchi Toshifumi Hirai Executive Vice President Atsushi Hirose Carlos Tavares Takao Katagiri Corporate Planning Product Planning Mark McNabb Market Intelligence Masaaki Nishizawa Brand Management Design Program Management Fellow LCV Business Infiniti Business Kimio Tomita Control
Executive Vice President (As of June 20, 2007) Hidetoshi Imazu European Operations (MC-E) Manufacturing SCM
Nissan Annual Report 2006-2007 89 » CORPORATE DATA
INFORMATION
FOR FURTHER INFORMATION, PLEASE CONTACT
Nissan Motor Co., Ltd. Investor Relations Corporate Information Website 17-1, Ginza 6-chome, Chuo-ku Global Communications and CSR Division http://www.nissan-global.com/ Tokyo 104-8023, Japan Tel: 81 (0)3-5565-2334 Fax: 81 (0)3-3546-2669 Investor Relations Website http://www.nissan-global.com/EN/IR/ Corporate Communications Global Communications and CSR Division Tel: 81 (0)3-5565-2141 Fax: 81 (0)3-3546-2669
90 Nissan Annual Report 2006-2007